Securing the future of children is no longer a child’s play. Pandemic has put parenting skills to test with extraordinary responsibilities as the nature of economic turmoil unleashed by the virus has caused massive depression in household budgets.
In the given situation, securing the future of children beyond normal parenting remains an uphill task. Today, there is dire need to help the children to have a financially prosperous future.
In other words, looking at responsible parenting through the prism of economic and financial angle makes sense today as we are experiencing the worst economic situation around us. This is the time to introspect where we stand in line with the future prospects of our children.
Precisely, it is absolutely critical for parents to plan judiciously and proactively, so that resources are available for the child’s most important goals, especially academic goals, as they may come at a time when it may be difficult to start saving afresh.
The moment a child is born, the letter of the law makes parents responsible for bringing the kid up. And it is the financial aspect which parents should, ideally, see to it that the child is provided with a sufficient cushion of financial resources which may be needed at different stages of life.
So, it’s best to start getting a fix on the money needed right after the child is born. School fees may not be a big burden, but it’s for your child’s college, higher studies and marriage that you would probably need to save for in advance.
And the sooner you start, the better it is. The reality is that when you start planning for your child early, you have time on your side—ideally, around 18 years before your child is ready to go off to college.
However, it’s not savings alone which matters. In fact, the key lies in investing the savings through appropriate investment channels.
Today, we can no longer bank on lower risk investment options or fixed-income options since the current pace of price escalation reveals that growth of our investments will be terribly affected by inflation.
There are investment avenues in the stock market where risk is higher, but returns on investment are also higher.
Let me specifically talk about the stock market as a place for children to bank upon for multiplying their savings. Apparently, the stock market is not viewed as a platform of investment options for children and mostly remains a forbidden arena for them.
But investing at a young age has huge advantages if the investor follows market signals meticulously. Warren Buffett, the great American investor, bought his first stock at the age of 11.
So, getting children into the stock market arena for investing in shares, bonds etc. is not blasphemous. The parents have to act as financial coaches and guide their children on how to invest in the stock market.
They need to explain to their children about the functioning of the markets, help them to inculcate a habit of investing and tell them about the long term benefits of regular investments.
Notably, parents can invest in stocks for minors. For this parents will have to open and operate Demat and Trading Accounts on behalf of their minor children.
Experts are optimistic that stock investing is bound to rise in the future, and teaching children about stocks can give them a head start in the investment world. If children are guided and encouraged to start investing in good stocks and hold them for a longer term, the returns on the investment could be sizable.
Precisely, time is ripe to expose children to the world of capital markets at an early age. This can encourage them to focus on building wealth through investments as adults. There are channels of investment in the stock market which suits kids. Any age is a perfect age to start a child’s investment account.
What is age-appropriate investment?
In investment matters age occupies centre stage. Two investors who are of the same age may have different time horizons in terms of retirement from work or different financial requirements for things like their children’s marriage and education.
In the context of age- appropriate investment, it has been observed that whether a young outspoken person keen to play the stocks or a mature investor seeking lower-risk assets, their age will definitely have an impact on their investment choices.
In the case of an investor who enters the market in their early twenties, a higher-risk investment portfolio might be an appropriate solution. His investment horizon might be long term as he may not require the funds for several decades. Greater exposure to the stock market, and even more volatile sectors, might be suitable for a younger investor going for growth.
In contrast, an investor in his late fifties has exhausted his risk bearing capacity, as age is not on his side. His best bet is to remain focused on reducing the risk while remaining invested in the market. The large portion of the money invested by this aged investor might be destroyed by the plummeting stock market when there is too little time for him to recover.
However, stock market experts suggest that whatever the age of an investor, the key driver will be the mixture of different kinds of investment he holds in terms of shares, bonds etc.
They opine that traditionally, mature (aged) investors should contemplate locking in any gains as they get closer to their financial goals, by moving money into the safer havens of fixed-interest bonds and cash. They call this shifting of asset allocation as “lifestyling”.
Here, it is most important for all age-group investors to know what they own. They should invest in the stock market according to the risk bearing capacity and following the adage – cut your coat according to your cloth.
What are the things for parents to keep in mind while coaching children for investment in the stock market?
Parents should be knowledgeable about the functioning of the stock market. They should have clear idea about various analytical tools and concepts of investing in stocks. However they don’t need to act as market experts, but should be a mentor while imparting stock market lessons to their children. Encourage the kids to take the internet to find answers to their stock market queries, if any.
It’s very important to tell children about the high risks associated with investing in the stock market. Moreover, experts suggest one could teach their children how to check the stock prices and access news on companies. Once the concepts of investing in the stock market are clear to the children, allow them to try their hands on picking stocks themselves.
However, parents’ surveillance of their kids in the market is inevitable. They need to track their investment activities so that their kids stay in the market as investors and not gamblers.
What are the general precautions to be taken in the stock market?
The investors should not turn blind eye to the regulatory signals. They should control their speed by maintaining appropriate pressure on the accelerator while playing in the market.
There are visible signals in the stock market which are guiding tools to help the investors to navigate safely at the crossroads. These signals in the stock market are not meaningless, but meaningful. They should respect these signals. Otherwise, they will expose themselves to high chances of getting hit and suffer losses.
So, the best bet in the risky environment of the market is to control your speed by adopting a slow down strategy. In the end this will help the investor to make the best out of the market in different conditions.
Disclaimer: The views and opinions expressed in this article are the personal opinions of the author.
The facts, analysis, assumptions and perspective appearing in the article do not reflect the views of GK