Children’s Day 2024: Why you should teach teenagers to start investing

As we celebrate Children’s Day tomorrow (November 14), let’s focus on the financial habits that can help young people secure a better future. Starting to invest at a young age may seem like a far-fetched idea, but it can be one of the best gifts a teenager can give themselves.

Experts agree that the earlier you start, the more time your money has to grow by laying the foundation financial freedom in adulthood.

Time: the best ally for young investors

Manish Goel, founder and CEO of Equentis, emphasizes that time is the biggest advantage of young investors.

The earlier teenagers start investment, the longer their money can accumulate.

Compound interest is the key to growing wealth over time—small contributions made over time can add up to a lot.

Take this example from Rahul Jain, president and CEO of Nuvama Wealth: A teenager who invests ₹10,000 every month in an equity fund earning 12% per annum can see their capital grow more than six times in 25 years.

However, it is true that not every teenager may have that kind of money.

Goel suggests starting with Rs 500-1000 to build the habit.

Starting early allows them to ride out market fluctuations and benefit from accruals, making the journey more rewarding.

Here’s another example that demonstrates the same (compiled by Manish Goel, founder and chief medical officer of Equentis):

According to Vinod Singh, CEO and Co-Founder of FINHAAT, “Getting an early start in equity investing offers several advantages, especially the potential for significant growth over time. Young investors have the advantage of a long investment horizon, allowing them to take advantage of market ups and downs, giving their investments time to grow. They can also learn and adapt to market trends gradually, making more informed decisions as they gain experience. Getting started early helps build good financial habits and allows you to leverage the power of compounding, which significantly increases returns over time.”

Emotional stability and intelligent decision-making

Young investors tend to have a longer time horizon, which gives them resilience against market volatility.

This emotional stability, Goel notes, often leads to better decision-making during downturns, which can impact long-term returns.

Jain emphasizes that patience is key.

The longer the time horizon, the more pronounced the compounding effect becomes.

For example, someone who invests for 25 years is likely to have a much higher return than if they started at a later age, even with the same amount invested.

Key concepts for teenage investors

Before diving into the world of investing, teenagers should familiarize themselves with some basic concepts:

Risk versus reward: Higher returns usually come with higher risks. Teens should learn to assess their risk tolerance and set realistic financial goals.

Diversification: Diversifying investments between different asset classes (stocks, bonds, real estate) helps reduce risk.

Market research: Understanding stocks, reading financial reports and analyzing trends will help young investors make informed decisions.

The magic of compounding: The earlier teenagers start working, the more their money will grow. Regular contributions, even small ones, will pay off over time.

Starting small, building big

Jane emphasizes that the key is consistency, not the size of the initial investment

Small regular contributions add up significantly through the power of compounding.

Investing regularly, whether monthly or quarterly, teaches discipline and financial responsibility.

Many apps and online platforms now make it easy for young investors to automate their contributions.

Teens who start investing are more likely to develop strong financial habits, such as budgeting and saving for future goals.