The degree of financial literacy is very low in India. As most individuals don’t perceive the nitty-gritty of complicated investments – that contain calculation of compound annual return or compound annual progress rate (CAGR) by means of inner rate of return (IRR) or different formulation – easy investments like mounted deposit (FD), recurring deposit (RD) and so on prime the checklist of traders’ precedence.
Moreover, traders favor FDs over equity-oriented investments like mutual fund (MF) just because the principal quantity in FD doesn’t fluctuate like that of the capital invested in equities.
So, most traders favor FDs due to the capital safety, oblivious of the truth that the capital invested in FD loses its buying energy over time because the FD charges are at the moment lagging the rate of inflation.
“A recent survey done by the Association of Mutual Funds in India (AMFI) indicated that 72 per cent of the population does not know how to achieve financial freedom by investing the proper amount. While 56 per cent of the participants have no knowledge about personal finance, 76 per cent of them believe that there is a need for financial planning education. So when children become aware of money you can teach them the importance of saving and investing,” stated Prashant Sawant, Co- founder, Catalyst Wealth.
However, issues are altering over time as new technology traders should not averse to taking calculated dangers and prepared to take knowledgeable selections.
But to make them able to making knowledgeable selections accurately, offering funding publicity together with financial education is important.
“Picking stocks with your children will lead them to know the basics of investing. This will eventually help them in their future financial goals. Being a parent holds a lot of responsibilities, especially now that the child’s education cost has risen so high. To-be parents need to start investing for their children in the short term and long term. There are various financial instruments available for this. It is always best to consult a professional financial planner for investments,” stated Sawant.
Apart from choosing the financial merchandise primarily based on their deserves, it’s additionally important for the youngsters to learn the way to make a financial plan to determine their financial targets and decide how a lot to make investments the place to obtain the targets by taking minimal dangers.
“Parents need to tell children about the importance of financial goal setting and educate children about how to allocate money based on the time horizon for each goal,” stated Sawant.
Before letting the youngsters deal with money of their very own, it’s a superb observe to handhold them until they study to make unbiased financial selections correctly.
“A parent can open a custodial account on behalf of their children. Helping children in choosing stocks will lead them to understand the nuances of investing, how to choose stocks, bonds, understand profit and loss, risk and rewards. The financial decisions are taken by the custodian (parents). When the parents need the money for their child’s education, they can use these funds as well as this will prepare and help the children to make righteous decisions and hone new skills while growing up,” stated Sawant.