If you see that your junior is showing an interest in investing, hold the moment. Share with your child why you invest. It helps them to find their right footing. Early investment lessons are life lessons. Unfortunately, financial literacy is not included in the school curriculum. Therefore, parents need to make their children learn about handling funds at a young age and open demat accounts for them. Many parents acknowledge the need for early investment lessons for their children to ensure future monetary shield.
Understanding how to save and invest finances prudently can go far toward becoming financially responsible adults. If they get financial literacy early, they can be independent. Understanding investment and developing skills are the keys to sound financial planning. Youngsters may learn by trial and error under their parents’ guidance early when mistakes don’t affect them harshly.
Let us cover the basics of investing principles your children should learn.
What Does Your Child Need To Know About Investing?
When teaching investing to children, it should be built onto basic education first, like budgeting, saving, and other financial fundamentals. Encourage them to save first in jars at home and then in a bank under your guidance. This foundation will get into fruitful rewards. Further, you can teach them about the market and stock trading.
Understanding the Ups and Downs
Stock markets are unpredictable as they keep fluctuating every moment. Therefore, talk to your child about being patient when a stock goes down or getting rid of them right away without any greed. You need to tell them when to sell the stocks that are performing well to gain significantly. It may take time but will help them to make maximum use of opportunities. Let them know that the market offers numerous opportunities to patient investors who know how to endure difficult times. It will help them to make wise investment decisions.
You need to teach them what amount of risk they can withstand. The risk appetite of investors differs. It is a matter of numerous factors, including investment goals, current liabilities, age, and available capital. A younger investor can have a limited and low-risk appetite. They should know the primary objective in stock trading is to save the invested capital rather than make profits while involved in stock trading.
Among various investing principles, diversification is not putting all your money in one stock or investment. Familiarise your child with different types of financial assets and their importance in a portfolio. Tell your child about the different ways of diversification to their portfolio. Let them understand mutual funds and exchange-traded funds (ETFs). These investments will help to build a diversified portfolio.
Relation Between Risks and Rewards
Your child should know the risk and reward correlation from the start. Teach them about the tradeoffs of risk and reward. They should understand that investments with high potential rewards usually have higher risks. It is necessary to find a balance between them to achieve your investment goals within the timeline.
Like most things in life, financial management skills also take time. Let your child know that investing is not a scheme to be rich. Your objective is to invest your funds into the market and watch it grow in the long run. Do not expect a quick reward. This lesson will help your child to stay realistic while expecting from their investments.
Set Investing Goals with Them
When you start something, it starts with goals. Establish what you want to attain from your investments in the short and long term. You can sit with them to determine their investing goals. Starting investment with a specific financial goal has several advantages. First, it leads your child to be calculated with their funds. It also helps them to diversify their investment portfolio as per their short-term and long-term goals.
Keep it Exciting
Parents need to understand that children can have short attention spans. Find ways to make the investing experience smooth with more fun. What you can do is set aside a small portion of their funds to invest in the companies they are excited about or love to use. It will give them a sense of connection to a company.
Thanks to the fintech trading platform and applications with the stockbroker, stock trading has become much easier for young traders. It can be an excellent opportunity to get your younger ones curious and excited about personal finance. Minors can open a demat account with their parents or a legal guardian at minimal demat account charges with discount brokers. You can tell them about demat accounts and trading accounts.
Thus, early understanding will strengthen your child’s knowledge about financial instruments and their advantages and help them to make financial decisions skillfully in the future. Before taking a hands-on investment approach, guide your child on such investing fundamental compasses – foremost diversification and risk appetite.