Encourage him to take the first steps towards investing by listing out the options, explaining the research and hard work that need to go into it, pointing out the pros and cons as well as the dos and don’ts, and finally taking the steps for the actual investing to begin.
1. Help set up goals, invest accordingly
Even before you point out the various avenues of investing, help the child formulate the financial goals for which he wants to invest. These goals can be as small as wanting to purchase a phone or a bike, and as big as buying a house or a foreign vacation. The goal term can be as short as a year or as long as 30 years. It is important to invest in synch with the goals because it will help zero in on the right investment option, as well as decide on the amount that needs to be invested on a regular basis, to achieve the goal. The goal value will, of course, also depend on the sum available to be invested as a lump sum or on a consistent basis. While some investors consider introducing their kids to the experience of investing without any goal in mind and open-ended wealth creation as the objective, it is best to put the child on a track that he is likely to follow and need as an adult.
2. Reasearch investment, return & risk options
Once the teenager’s goals, time frames and goal values have been clearly outlined, it is time to opt for the best investing options. You will not only need to explain the working concept for each option, but also the likely returns and risks associated with each. Explain all the common options like fi xed and recurring deposits, PPF, mutual funds (debt/equity/hybrid), stocks and real estate. List the pros and cons of each, allowing the child to pick on his own. If the goal value is not too high and the time frame is short, the child could opt for a recurring deposit. If the goal is long term in nature, you can suggest investing in equity mutual funds. If he wants to explore stocks, explain the diligence it will require to research on the company he wants to invest in and the follow-up monitoring it will require.
3. Open accounts, start investing
Once the investing options have been selected, open the required accounts, whether it is a bank or a demat account. If the teen is 17 or 18 years old, have him fill out the forms under your supervision. Let him deposit the monthly allowance in his account, and monitor periodically how the money is growing and whether he is on track to achieving the goal. Set up e-mandate if the money is being invested from his account and explain the importance of having the required amount in the account on due date.
4. Avoid speculation in stocks, cryptocurrency
For proactive teenagers, the lure of easy money in stocks and cryptocurrency can be difficult to resist. It is, however, best to ignore such specuation at this stage. While you can explain the concept and risks associated with such investing, if the child insists on trying these out, let him do so with a small amount that you are ready to write off. Let him invest for a longer duration so that he understands the pain of losing money as much as the pleasure of earning a quick buck.
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Disclaimer
The advice in this column is not from a licensed healthcare professional and should not be construed as psychological counselling, therapy or medical advice. ET Wealth and the writer will not be responsible for the outcome of the suggestions made in the column.
