Most Indian students learn algebra and history thoroughly, yet leave school with almost no understanding of saving, investing or borrowing. Parents who take part in the Share Market often assume their children will pick things up naturally, and families that already hold a Demat Account have a ready tool for teaching. With thoughtful guidance, teenagers can build money skills well before their first pay cheque arrives.
Starting With Everyday Choices
Financial literacy can be taught in a simple way. Start by asking your teen how they currently save their pocket money. Do they save up for gadgets? Do they save a bit each time they get some money? Get them to track their spending over the course of a month using a notebook or phone. It will show them where their money goes and is a great starting point.
This can lead into a discussion about wants vs needs. You can explain how it’s a good habit to pay yourself first and save a little bit of any money they receive. This helps them to develop the habit of saving which is essential when investing in the future.
How Money Grows
The most powerful thing to teach is compounding. Explain how if they save a little bit each month over many years, they will earn money on the money they have earned! Ask them to calculate how much they might earn by saving a little each month for 10/20/30 years. Assuming a reasonable rate of return.
It is good to highlight that there is no guarantee they will get a return but this shows how valuable it is to start saving early. Often this will change a young persons attitude to saving.
Responsible Investment
There are rules around investing as a minor. Check what the rules are now with your SEBI registered broker/adviser. Often parents will invest on behalf of their children but will involve them in the decisions. This means your teen can learn from watching without any issues.
A great way to teach is to choose a small diverse investment together. Track it over the course of a few months. Why did you choose this investment? What does it cost? What could go wrong? Get your child to read a factsheet or annual summary from the company. This isn’t about making money but understanding.
Key Points to Highlight
Start early – Time is your best friend!
Diversify – Don’t put all your eggs in one basket!
Watch out for fees and charges – They can eat into your returns!
Never invest on credit – Invest using money you have saved!
Be sceptical of anyone promising high returns!
Invest with a long term view – Wealth is built over years!
These points can be brought up in different scenarios such as when talking about how they will spend their money at festivals, school fees or a family member’s finances.
Digital Security
Young people are very tech savvy. However, they need to know never to give away passwords or one time codes. Be cautious of any links or calls from people they don’t know. Always check any intermediaries using the regulator site. Often scammers will target those who aren’t as experienced with tales of getting rich quick!
If your teen learns to be sceptical of unrealistic offers they will be safeguarded for life. Whether it be from a messaging app, social media influencer or unknown phone number.
Connecting to their Future
Help your teen to understand how these skills connect to their future. Talk to them about how they will split their first salary between their outgoings, savings and investments. Explain how insurance works, having an emergency fund and taxes. Visit a bank or ask your trusted adviser to explain some basic products in simple terms.
Get them interested in how companies work. Ask them who makes the product they are using. How does the company make money? What could impact the future of the company? This will help them think like an owner which is key for good investing.
Leading by Example
Children learn by example. If you are budgeting, investing regularly and talking about money calmly they will pick this up. However, if money is a constant worry or something they don’t talk about they will pick this up. Be transparent with your decisions. Even if you make a mistake, this will help them to understand that learning is a process.
Taxes & Keeping Records
In simple terms explain that they may have to pay tax on any gains they make from their investments. This will depend on how long they have held the investment for. The rules will change depending on the Union Budget. Show them how to keep records of their transactions and where to find official information. A chartered accountant can help families with queries around attribution of income.
Advantageous
If your teen understands how to save, compound, diversify and be cautious then they have an advantage that cannot be matched with an inheritance. Start with small conversations, lead by example and get them curious. By the time they get their first salary they will know exactly how to make the most of it!
