Do you remember your kids filling up their piggy banks or mason jars with the change they received from you or your relatives on festive days? How eagerly they saved to buy their favorite toy or book they wanted?
You did encourage your children to save when they were toddlers and young adults. So, why don’t you teach your teenager to invest too?
Wonder why you must when you are working to ensure their future is safe and secure. As parents, we are sure you may want to do everything for your child’s future. However, the future is uncertain, and helping your teen understand more about money now can help them avoid financial troubles later.
Why Must You Help Your Teenager Start Investing Now?
Experts often state start investing early. It is never too early if your children understand more about money. Moreover, if your teens start investing now instead of waiting to invest later in life, they may have an advantage over their peers both; in the returns they earn and the knowledge they gain from investing.
Benefits of Compounding: Age is one of the most valuable factors in investing. You can enjoy the benefits of compounding, where your money grows multi-fold. The earlier your teens start, the longer their money will work for them.
For instance, imagine your Teen A starts investing Rs. 1000 at age 15 every month with a 10% return till age 60. Then, Teen A will build a corpus of ~95 lakhs for an investment of Rs. 528000.
But if he starts investing Rs. 1000 at age 30, he will build a corpus of ~22 lakh for an investment of Rs. 348000.
Remember, the money earned can help your teen pay for college, start a business, or travel globally.
Financial security: Investing early will help your teens become financially secure and understand investing better. Personal finance can be stressful. A 2018 National Financial Capability Study from Financial Industry Regulatory Authority found that 53% of Americans believe their finances make them anxious. Among the respondents, those aged 18 -34 felt stressed the most.
If you help your children learn about finances from a young age, you can help them be less anxious and more confident about money.
We have just told you why you must encourage your teens to start investing. As your children enter their teens, they may want to manage their own finances. As a parent, the best thing you can do is help your teen understand investing, the options available, the pros and cons, the dos and don’ts, and how to start investing.
We have four steps your teen can take to begin their investment journey
Set up goals and explain the reason for investing
Before telling your teenager about the investment options encourage them to set up financial goals. The goals can be anything, from buying a phone or a sporty bike to purchasing a house or going on a vacation abroad.
Help your teen children understand the time they must invest to achieve their goals. They may want to invest for at least a year or more for smaller goals. But they could stay invested longer if they wanted to buy a house. Once the goals are set and the children know why they must invest, they can choose the right investment option and the amount to invest.
The value of the goal value may depend on the sum your teen can invest as a lump sum or regularly. Some parents may want their teens to experience investing without specific goals. However, the best thing you can do is help set a goal to create wealth, as your teen may follow the same method to create wealth as an adult.
Study the investment, return, and risk options
Just outlining goals, timelines, and values is not enough. Help your teen now pick suitable investing opportunities. You must explain how each investment option like FDs, RDs, PPF, mutual funds, equity stocks, and real estate work. The kind of returns possible, and the risks involved.
List the advantages and disadvantages of each, letting your teen pick his investment option. For instance, if the goal value is not too high and the time frame is short, then your child could select a recurring deposit.
However, if the goal is a college education, then investing in equity mutual funds could be right. What if your child wants to explore equity investments? Then, explain how diligently your teen would need to research a company before investing and the added follow-up required to keep an eye on the investment.
Do the paperwork and start investments
After your teens choose the investment option, help them set up their savings and Demat accounts. Set up a custodial account if your teen is less than 18 years old. However, if your children are almost 18, they can fill up the forms under your supervision.
Your children can deposit their monthly allowance in the bank account, monitor how their money is growing, and check if they are on the way to achieving their goals. Help your children set up e-mandates if the money is being invested from their account. Don’t forget to explain the importance of having money in their account on the due date.
Caution your teen about risky assets. Start small
For hands-on teenagers who take to investing quickly, the lure of easy money in stocks or cryptos can be tempting. Avoiding speculation at this stage is the best thing to do. However, despite explaining the concept and its risks, if your child insists, let him start with a small amount. It must be an amount that you are ready to write off.
Let your children invest for a long time to understand how losing money or earning a little feels.
It’s the summer vacation, so we thought of creating a complete series just for you. This blog is the first in the series. Be sure to keep an eye on the next blog during the week.