Financial literacy for your child: Follow these golden rules

Financial literacy is a very important skill that you should teach your child from an early age by gifting him/her a piggy bank or by opening a savings account. This small step of yours will ultimately help your child in the future. The National Centre for Financial Education in 2019 conducted a survey and said that only 27% of Indians are financially literate.

Amongst the BRICS countries, financial literacy is the lowest in India. Therefore, there is a need to make the children financially literate.

Why it is important

First and foremost, it makes your child financially disciplined and prudent. This will eventually help him/her to reach his/her financial goal without much problem. When children are aware of finance-related concepts, they can influence their families by sharing the knowledge on importance of savings and take necessary steps for better money management.

The habit

Savings from a very early age is prudent. So, if you open a minor savings account for your child at an early age, you can make him/her understand the significance of savings, said Nilotpal Banerjee, a financial planner.

If you just make your child understand that how recurring deposit or fixed deposit works and what are the advantages, your child might develop a habit of saving even before he/she reaches 10, added Banerjee.

You can teach him/her that with regular contribution of only Rs 50 he/she can make a neat corpus after a time period.

Where to invest

Consider two or three simple things – a savings account, a recurring deposit and an SIP. You can start your child’s learning with these three or any of these three instruments.

A person can start making deposits in a savings account with as low as Rs 50, recurring deposit with Rs 100 and SIP mutual fund with Rs 500. So, plan accordingly and introduce him/her with the basics of financial learning.

A Sukanya Samridhi Yojana account can be opened for a girl child below 10 years. After the girl child becomes 10-year-old, they can operate the account themselves as well.

Investing in a scheme with a child would give them ownership and make them responsible. As a parent, you should discuss with them about the financial product so that they understand the nitty gritty of these products. You can make financial plans for them which can help them buy their dream.

Bottom line

Institutions like RBI, NSE, BES, CBSE and some others have taken initiatives to teach the children several financial things. But as a parent, you should also impart financial literacy to your child.

Let us take the example of Arnab and Sanchari, young couple in their early 30s based in Kolkata. They have a kid who is just eight months of age and have two savings accounts in his name with RD and SIP investment. They have started this financial step at least five months ago.

“We have already opened two savings accounts in the name of our child and have started saving through recurring deposit and mutual funds. We want to make our kid understand how important investment is from a very early age,” Arnab told Money9.

“This approach is laudable and everybody should follow it. These initiatives by the parents will help the child in future to a great extent. Every young parent should follow this to make their child financially literate from a very early age,” said Banerjee.