By teaching their children the importance of systematic investing, parents can set them up for a prosperous life
23-Mar-2020 •Research Desk
Children are excellent learners. From the time they are born till they attain adulthood, they are in the constant process of learning. If they are given good education and guidance, they can develop into confident and prudent adults. Little surprise that many parents are especially concerned about their children's education.
But what about financial education? Not many parents can boast of equipping their children with that, at least for a significant part of their childhood. Financial education is generally postponed till a person starts earning. And then who provides it? Many of us have learnt simple financial lessons the hard way. Some of us may not realise the importance of saving and investing even after many years into adulthood. Even worse, by the time we grow up, we may have developed deep-rooted bad financial habits that prove to be an impediment to progress for the rest of life.
Unfortunately, financial education isn't a part of school curriculum. But, as a parent, you can start your child's financial education while your kid's world is all about toys, playtime and cartoon films. Start with educating your child about saving. Get your child a piggy bank or a gullak. Encourage him to regularly put money in it. A simple formula could be to give a `1 coin to your child daily and asking him to put it in his gullak. Over time, he will accumulate many coins and there will come a point when the gullak is full. Take out the coins at that time and show your child how his daily contributions have resulted in a 'large' corpus over time. Most likely, your kid is going to be amazed. This would be his first lesson on systematic investing.
As your child grows, introduce him to banking. The idea of systematic investing remains same here. Encourage your child to put some money in his account regularly. The difference this time will be the extra returns he can generate through interest income. Of course, the return isn't high, yet for a child that's almost magical - extra money by just keeping money in a bank account!
At an appropriate time, introduce your child to the stock market and investing in it through mutual funds. Tell him how he can build wealth by systematically investing in a good equity fund. Emphasise the need for staying invested through various phases of the market. Discuss how the market has created wealth over time. As your child turns 18, encourage him to start investing in equity funds through SIPs. Assist him for the next few years till he becomes a confident investor.
A few other things also go a long way in creating an environment of financial discipline at home. Talk about the importance of money. Emphasise how one has to work hard to earn it and that's why one should judiciously use it. Walk the talk. Act in the same way as you would want your child to act. Reward good financial behaviour.
Warren Buffett started investing when he was just 11. By providing your child the right financial guidance, you can also set him on the path of financial prosperity. What you teach him now will stay with him forever. Indeed, child is father of the man.