Indians are well-known for their intelligent thinking when it comes to money, however, when it comes to understanding investment and financial diversification there is a huge lack of knowledge and investment appetite. Young professionals find it hard to file their taxes, understand the equity markets or practice trading & investment as not enough emphasis was given to teaching the students about these potentially important life-subjects in schools or colleges.
We as millennial have always been taught that investment in stocks is the riskiest and we will end up losing money.
A majority of Indian households prefer to save their money in bank deposits while less than 10 percent go for investing in alternative assets, including stocks or mutual funds. In fact, gold, post-office savings and real estate are prioritized when it comes to stock trading and investment.
This typical money saving tactic is often the reason why the youth is vary of going the unconventional way when it comes to saving. Watching their elders digress from the path of risk, they too lack the appetite and knowledge in investing and prefer the saving module.
As per a survey by AMFI, 72% of the population is unaware about how much money should be invested to achieve financial freedom. Another 56% of them lack the knowledge of handling personal finances and about 76% believe that there is an urgent need for education in financial planning.
While there is nothing wrong in saving money in bank deposits, there is a plausible risk of value depreciation due to inflation over time. This calls for a need for early training in stock trading and investment, teaching them about the concepts of compounding, share market, portfolio diversification and much more that can help them be more financially savvy as adult.
So why educational institutions and parents should be teaching investment and trading to their young children? College students are young and dynamic with time on their side which when combined with compound interest can reap greater profits than the conventional adults who start investing in their 30s.
Here’s a quick analysis:
$100 is principle amount. When invested in Fortune 500 companies, it has the chance to gain 10% every year. The first year will end with the final amount of $110, followed by $121 the next year and $133 the year after that.
The magic of compounding works very well for college students as it allows more time for money to grow.
Investing early on also allows them to take small and calculated risks without the fear of affecting their livelihoods and families. It in fact, offers an insight into stock assessment and investment risks which empowers them to analyze existing share prices and observe their rise and fall to make smart choices.
Below are few tips through which we can Introduce Stock Investing to Students?
Explain the difference between savings and investing: It is important for students to understand that while saving is the safe way to go, investing in small increments allows the money to grow itself.
Explain the importance of financial portfolio diversity: Investing is all about NOT putting all the eggs in one basket. Introducing trading and investment can be given a positive twist of the monetary potential it allows with the minimum risk factor if done right.
Explain basic concepts: As mentioned, investing allows a diverse financial portfolio. Therefore it is important to teach students the basic concepts such as stocks, NSE, BSE, mutual funds, equity and others. Helping them understand different variations will empower them with options and choices.
Improve their stock analytical skills: As mentioned, the stock market is a blend of intuition and analysis. Teaching college students the basics of share prices, their rise and fall and their impact on their investments is important to get them started on trading.
Leverage Gamification: Gamification is yet another interesting way to pique the young minds’ interest in trading and investing. The mock version of real-time Stock Trading allows them to witness the market first hand as well as experiment with stock purchase and selling without any risk or exposure to markets helping them overcome the fear of losing money.
By starting young, it is possible to change the mindset of the younger generation with respect to money, allowing them a chance to be debt-free and be more financially independent with potential to improve the Indian economic scenario.
Views expressed above are the author’s own.
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