Indians are well-known for their astute thinking when it comes to money. However, when it comes to understanding investment and financial diversification, there is a distinct lack of knowledge and investment appetite.
One of the biggest disadvantages of the current education system is its apathy to financial knowledge. Young professionals find it hard to file their taxes, understand the equity markets, or practise trading and investment because not enough emphasis is given to teaching students about managing money.
A majority of Indian households prefer to save money in bank deposits, while less than 10% opt to invest in alternative assets, including stocks or mutual funds. In fact, gold, post-office savings and real estate get priority over stock trading and investment.
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 necessitates early training in stock trading and investment, teaching the concepts of compounding, share market, portfolio diversification and other aspects that can help them be financially savvy as adults.
So, why should educational institutions and parents be teaching investment and trading to children? The simple answer is time. College students are young and dynamic and have time on their side. Combined with compound interest, this can help them reap greater profits than adults who start investing in their 30s.
Here is 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 allows more time for money to grow. Investing early also allows them to take small calculated risks without the fear of an effect on livelihood and families. It offers an insight into stock assessment and investment risks, which empowers them to analyse existing share prices and observe their rise and fall to make smart choices.
Introducing stock investing to students
Start with explaining the following:
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.
Financial portfolio diversity: Investing is NOT about putting all eggs in one basket. Introducing trading and investment can show how monetary potential is upped and risk factor kept to minimum if done right.
Basic concepts: Teach students about stocks, NSE, BSE, mutual funds, equity, and help them understand different variations. This will empower them with options and choices.
Improve stock analytical skills: The stock market is a blend of intuition and analysis. Teaching college students the basics of share prices, their rise and fall, and impact on their investments is important to get them to trade.
Leverage gamification: 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. This will help 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 and allow them a chance to be debt-free and more financially independent.
The writer is Founder and CEO, StockGro
