Edition: May 6th, 2021
Curated by the Knowledge Team of ICS Career GPS
(Image Credit: Freepik)
Excerpts from article by Ajay Lakhotia, published in The Hindu
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, reveal surveys.
Apathy to financial knowledge
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. While there is nothing wrong in saving money in bank deposits, there is a plausible risk of value depreciation due to inflation over time.
Early training in portfolio diversification
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.
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.
Investing early 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. So it is wise to introduce stock investing to students.
Understanding the following financial concepts will be beneficial to students:
1. Difference between savings and investing
It is important to understand that while saving is the safe way to go, investing in small increments allows the money to grow itself.
2. Financial portfolio diversity
Investing is NOT about putting all eggs in one basket. Introducing students to trading and investment can show them how the monetary potential can be upped while keeping the risks to a minimum – if done right!
3. Basic financial concepts
Students should know about stocks, the National Stock Exchange (NSE), the Bombay Stock Exchange (BSE), mutual funds, equity, etc., and also understand the different variations. This will empower them with options and choices.
4. 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 the impact on their investments is important to get them to trade / invest.
5. 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 the actual stock 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 financially independent.
(Disclaimer: The opinions expressed in the article mentioned above are those of the author(s). They do not purport to reflect the opinions or views of ICS Career GPS or its staff.)
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