Reap rich dividends: early exposure to financial literacy will help students become financially savvy
Indians are well known for their wise thinking when it comes to money. However, when it comes to understanding investing and financial diversification, there is a glaring lack of knowledge and appetite for investing.
One of the biggest drawbacks of the current education system is its apathy towards financial literacy. Young professionals find it difficult to file their taxes, understand the stock markets, or practice trading and investing because there is not enough emphasis on teaching students about money management.
A majority of Indian households prefer to save money on bank deposits, while less than 10% choose to invest in alternative assets, including stocks or mutual funds. In fact, gold, postal savings and real estate take priority over stock market transactions and investments.
While there is nothing wrong with saving money on bank deposits, there is a plausible risk of depreciation in value due to inflation over time. This requires early training in stock trading and investing, teaching the concepts of composition, the stock market, portfolio diversification, and other aspects that can help them be financially savvy as adults.
So why should educational institutions and parents teach children about investing and trading? The simple answer is time. College students are young and dynamic and have time by their side. Combined with compound interest, this can help them make bigger profits than adults who start investing in their 30s.
Here’s a quick scan: ₹ 100 is the main amount. When invested in Fortune 500 companies, he has the chance to earn 10% each year. The first year will end with the final amount of ₹ 110, followed by ₹ 121 the following year and ₹ 133 the following year. The magic of the composition allows more time to save money. Investing early also allows them to take small calculated risks without fear of an effect on livelihoods and families. It offers insight into stock valuation and investment risk, allowing them to analyze existing stock prices and observe their rise and fall to make smart choices.
Presentation of equity investment to students
Start by explaining the following:
Difference between savings and investment: It is important for students to understand that while saving is the safest solution, investing in small increments allows the money to grow.
Diversity of the financial portfolio: Investing is NOT about putting all the eggs in one basket. The introduction of trading and investing can show how the monetary potential is increased and the risk factor is minimized if done well.
Basic concepts: Teach students about stocks, NSE, BSE, mutual funds, equity and help them understand the different variations. It will give them options and choices.
Improve inventory analytical skills: The stock market is a mixture of intuition and analysis. Teaching students the basics of stock prices, how they rise and fall, and how they impact their investments is important in getting them to trade.
Take advantage of gamification: The dummy version of real-time stock trading allows them to observe the market first-hand, as well as experience buying and selling stocks without any risk or exposure to the markets. This will help them overcome the fear of losing money.
By starting young, it is possible to change the mindset of the younger generation towards money and give them a chance to be debt free and more financially independent.
Writer is Founder and CEO, StockGro