Parents often bother about and attempt to protect their children’s future, but many of them don’t invest in good investment decision when it relates to their children’s future. Proactive preparation for your child’s investment might provide you ample time to save money at your own speed and broaden your investment strategy with a higher asset allocation towards equities for greater returns.
The most common error that parents make is deferring investments for their children’s future needs. This is commonly caused by time bias, in which parents believe that they always have enough time to attain their savings objectives for their children. However, time is an essential and indispensable component of the investing process. The sooner you begin investing, the smoother it will be to meet your objectives and save money for your child.
Parents must determine short and long-term objectives as you need to invest differentially to save for their schooling monies and for their further education. For example, for shorter investment periods, choose liquid and reliable investment choices such as fixed-income securities. Long-term investment goals, on the contrary, may be met by investing in mutual fund SIPs, equities, ETFs, and so on. Furthermore, education is a multi-decade endeavor. Therefore, you must save in order to get cash on a regular basis during the investment period. As a result, target-based investment is critical for securing your child’s financial future.
Parents must enroll their children in the family floater policy of health insurance given by their employer. If you are self-employed, then a family floater health insurance policy is required, and your children must be included in it as well. It is just as crucial to have proper health insurance for your child as it is to save sufficiently for their future.
How to make your child financially literate:
There is a widespread belief among the general public that financial planning should be taught at schools and universities. This is because, if the goal of education is to help students prepare for the future, fundamental financial knowledge should be a required component of their school syllabus. Unfortunately, our educational system does not place enough emphasis on this essential life skill.
Having said this, parents can undoubtedly improve their children’s financial literacy by educating them about savings, right from a young age. If you want your child to grow up to be a financially secure person, you must teach them about money management. This obligation to impart them with financial knowledge will train them to respect money and to utilize it sensibly.
Expose your child to monetary items as soon as she is able to if you want to give her a head start in life. Savings, investments, debt management, and other elements imparted at an early age provide a solid foundation for your child’s financial choices. You should help your child understand how you earn and save money for them and how it will help them in the future. To learn the importance of money, you must educate your child to distinguish between needs and wants and allow them to handle their pocket money. Encourage them to decide between requirements and desires. This will help kids recognize the importance of money. Also, pass on your knowledge and experiences from your financial triumphs and mistakes to your child in order to set a good example.
According to experts, if you want to educate someone, include them in the task. If your child starts to engage in home financial choices, she will be able to make wise financial decisions later in her life. Parents must talk to their children about money and finances. Parents should also listen to what their children have to say about budgeting and expenditure management. It assists the youngster in comprehending the family’s financial condition.
Your child will be able to make the appropriate monetary and investment decisions if she understands the fundamental financial principles.
LET US DISCUSS FEW IMPORTANT STEPS THAT PARENTS NEED TO TAKE TO SECURE THEIR KIDS FINANCIAL FUTURE:
Open a savings bank account:
Opening a savings account for your child is undoubtedly the most important step in his or her financial journey. Pick a good bank that provides a broad range of services. Most significantly, it should be a financially stable bank. Some bank accounts have incredibly high average monthly balance criteria, whereas a basic account typically requires Rs. 5,000 as minimum balance requirement. The internet banking option is crucial, particularly for the younger class, which seldom uses branch banking. Choose a bank with an easy-to-use User Interface and fantastic mobile banking capabilities that will please any youngster.
Introduce them to debit card and online transactions:
In recent times, the debit card that accompanies a savings bank account has shed some of its glitter. The introduction of the UPI (Unified Payments Interface) has altered the way we do banking transactions. Nonetheless, the debit card may be used to draw cash from ATMs and in locations where UPI is not accepted. Educate your youngster how to operate a debit card and the risks of online scams. It’s an excellent idea to set a modest daily purchase limit on the debit card to prevent fraud. Allow your youngster to register for UPI and integrate it to his savings account. Allow him to utilize a digital wallet for performing those UPI transactions.
Make them feel their progress in the financial journey:
Make the savings method visible. Putting cash in a transparent jar and watching it grow is an excellent illustration of this. People frequently overlook that pennies become rupees, and rupees become thousands of rupees. The jar will serve as an indicator of how rapidly money can build if you save and resist the impulse to always spend money as you earn it.
Tell them your financial stories:
Bedtime stories provide youngsters with both fun and education. So, every now and then, share your financial tales (including successes and mistakes), such as, “How did you realize the magic of compounding?” Why your life insurance policy cover was insufficient? Who taught you about the ease of using credit and debit cards, the power of equities, and the value of mutual fund investments?
Usually people realize these financial lessons the difficult way, or in their late 30s or early 40s, which may be too late. Furthermore, money issues are rarely discussed in Indian homes. Indian parents would go to any mile to give their children with the greatest academics and worldly luxuries. However, they leave the children to ward on their own in terms of knowing money and handling their finances. Teaching children your experiences and financial learning will enhance their monetary judgments and set the stage for them to make well-informed choices.
Motivate the child to learn money habits:
Encourage your children to set investment objectives. Ingraining a goal-setting practice in young children is one approach to teach them financial accountability, especially saving. Make a savings target sheet and use labels or pictures to show how much money they save each week. If your child wishes to save for a particular object, consider including a photo of what he or she intends to buy with the collected money as an encouragement.
This is a fantastic discipline to form at a young age since it has implications outside finances and will benefit them both at school and later at the time of their employment as well.
Make them understand Delayed Gratification:
Perseverance is the underlying treasure to achieving any objective, notably financial objectives. Children must learn that it takes time to accumulate wealth in order to reach their goals. It’s really simpler to show them this with small monetary targets. Demonstrate the importance of delayed gratification. Rather than spending ten rupees on a chocolate today, teach them to save that money and continue to save until the youngster has enough to purchase a bigger favorite item, such as a new bicycle or a gaming system. This works because it encourages discipline to save money for a later, far more satisfying reward.
Teach them the Magic of ‘Compounding’:
This suggestion is basically just for somewhat grown-ups; maybe to youngsters in their late teens, as small children may not grasp this concept right away. Nonetheless, it’s a seedling worth sowing. Parents could encourage their children to save by presenting them a compound interest chart that shows how quickly money can grow if saved over time.
Start investing in mutual funds:
We’ve all heard about the advantages of beginning to invest at a young age. A person who begins at the age of 25 can acquire a sizable fortune by the age of 60. Consider how much one may accumulate if she begins seven years earlier, at the age of 18. Certainly, at the age of 18, she may not have a lot money to invest because she isn’t working. However, setting aside little amounts of money each month or placing money obtained as presents into equity mutual funds can be quite lucrative in the long run. She can even engage in debt mutual funds for her short-term goals and see her wealth increase securely and consistently.
Introduce them to stocks:
Expose your child to the incredible potential of the financial markets when he or she is 18 years old. Create a trading and demat account for her and instruct her on how to purchase and sell equities. Many banks provide 3-in-1 accounts, which combine a savings account with a securities trading account and a demat account.
However, stock investment is for those who are willing to take on some risk. So, for a risk-averse investor, various fixed-income products such as Fixed Deposits, liquid funds, debt mutual funds, and so on would be preferable.
Conclusion:
Parents should take responsibility to educate their children about money. Parents must also remember that if they do not educate their children on how to handle money, someone else will. In the absence of a comprehensive financial education framework, young investors rely on imbalanced financial advice from a variety of resources, including friends, family, media stories, and social media gurus. The major risk is that such financial advice is frequently based on poor assumptions, inaccurate or inadequate facts, and skewed perceptions.
Last but not least, the apple does not drop far away from the tree. The lesson is apparent and unforgettable when the youngster sees how organized the parent is when it relates to managing the family money. When it pertains to teaching money skills to your child, the smartest thing that you can do is to set a good example. This is because your children are observing and responding to everything you do and say. If you spend recklessly and never consider saving, your children will observe and conclude that this is the proper way to manage money. However, if you make a point of saving what you can and discussing it with your children, it may have a significant influence on their financial future as well.
