How to teach children about savings, fixed/recurring deposit, interest rate, risk, mutual fund, stock

By Madhurie Singh, March 31, 2012


Kids Financial Rules

Adults financial rules

Piggy Bank

Savings Account

Save every month to encourage the habit of saving.

Recurring Deposits and SIP to encourage habit of saving by investors

No rules to put money into piggy bank or account

No entry load to encourage any amount of saving

If you take money out before the end of the year, I will not give you full money you saved. To discourage spending.

If you withdraw or stop RD or SIP before 1 year, banks deduct a percentage from the total amount as tax or penalty to discourage withdrawal of money before one year. Money takes longer than a baby to mature.

If you put more money in between from the birthday party income, I will give you Rs 10 more for every Rs 100 you save above your monthly saving.

If you save lump sum into any FD especially when the market is high, you will get more and safely increase the sum you invested. This is to encourage saving and investing bonus amounts given by  banks companies or Government if any unexpected extra money got from any source.

If you want to buy an IPad. Start saving every day and every month the amount you need to buy an IPad. Add a little more to the saving per month as the cost of IPad may be more after 2 years.

If you have a long term goal in future, like childrens’ education 10-15 years from today, retirement plans 20-30 yrs from today, start saving and investing monthly small amount which will add up to your future requirements. First find out how much will the future goal need considering the inflation will happen and reduce value of the money you are saving now. Remember our parents used to earn 500/- and we earn 50000/- for the same monthly expenses.

In case you are really a good child and very regularly saving every pie and doing what a good child should be doing, I will add 50% of the money you saved at the end of one year as a prize. This is to encourage good behavior, regularity and loyalty.

In case you are regular and the company does well we will give you dividends which will be added to your invested amount at the end of the year. This is to encourage regularity and loyalty of staying with the company.

If you want to buy a bike you will have to start saving into another piggy bank. You will have to earn by doing house hold chores as you grow older. This will allow you to know from which piggy bank you have to spend for your IPad and which one you cannot touch. Also you will learn that working hard only helps your bring money which can grow.

For every new goal, you will have to start a new saving or investment account. You cannot have one saving account or one investment account as a general money invested from which you can take money out whenever there is a need. It helps to have one investment tool for Kids education only, one for your retirement only, one for your vacation trip only, one for medical needs only etc etc.

If you keep your money in piggy bank you will save less. If you give me your money, I may add based on my moods, your behavior. This is to encourage taking risk but with more chances of getting back more as I am the parent will look at the best of my child.

If you keep you money with bank or save in very safe tools then you get less increase in your savings.

But there are other ways also to invest your money which may give more returns than a bank.

If you give your money to your friend to save for you I will not give you anything if your friend does not return your money. This is to discourage lending of money to anyone else other than parents.

If you invest in any investment which promises very high returns, the chance of not getting the money is very high. So avoid giving money to friends and any company that promises very high return as they are high risk.

If you let me use your last one year savings for next one year, I will give you Rs 100 more. This is to encourage children giving their savings to you when you want some extra cash. But ofcourse you give them a fixed amount when you return the money. This is also to encourage parents to return money borrowed from their kids and reward them too.

If you save with fixed return investment tools like FD and Bonds you know how much you will get at the end of the year and is safe. 

I need money now but only for 1-2 months and then I will return your money back with extra Rs 50. This is to let the children give you money when in need and earn high extra for helping you out.

If you save in short term bonds and deposits where the govenrment, a bank or a company needs money only for short term desperately, they give higher interest rate than for longer period.

If you keep your money with nanaji or dadaji, they will give you more money than I will. This is to encourage kids giving money to their grandparents too.

If you save with your retired parents you will earn more return. This is to encourage parents who are senior citizens to not give away their money to their kids. Also to give security to their old age expenses government wants senior citizens to keep money in safest and yet growing way.

If you want to get more than what I can give you, you can give your money to a trusted uncle who has a Mc Donald branch. That way whenever the uncle's business makes profit, he will share with you a small percentage based on how much you had given him. So you know that everytime you eat at McDonald's you are making some profits too :).

If you wish to invest in stocks, you have to choose a safe, growing and profit making company which is there for many years life the Large Capital companies. Also another way to choose a company is to see what are the products you trust and will continue consuming or buying their products or services in the long run. Every time you buy that product or service, you are increasing you profits per share.
If you want give your money to that aunty who started her spa yesterday, remember she has just started her company. She is learning too. I do not know how good she is or how long she will run the spa. SO she may not do good business and you may not get any profit. And if her husband moves to another city, she may not return you money or may return very little. Also you have school and later college. How will you see how she is doing her work. If it was a book store or a toy store, atleast you could buy the toys and books. Also you could tell your friends to buy from there but at your age who will use spa? This is to ensure your child is aware of where and who he/she is giving money to and if they are good or not good uncle or aunty.

When you are new to stock market, you do not know which is good company, which has good management, who has good business orders, who has good money balance etc .

So you too should avoid new mid and small capital companies, NFO's from new small capital companies. You never know when they will be delisted from NSE or BSE. 

If you have saved good money and want to know give your money to another uncle who has a Maruti showroom as we have a car made by Maruti, you can do that. Then you can give your money to Big Bazaar or Lifestyle as we go there to shop. So every time we spend there, your profit increases. But since you cannot now keep track of all these alone along with your studies and sports, you can ask Raju mama to help you. He also gives his money to all these companies. He is more knowledgeable than you and has more time as he is studying CA. Then he will do what you want to do with your money. But because now you do not have to do this hard work yourself, you will have to pay him a small fee for his hardwork.  When you want to invest in more than one sector and more than 10 companies, it is not possible to concentrate in the work you are doing and in keeping track of the companies and the market, the laws, taxes and all various factors on which the performance of the shares depend. So you invest in a Mutual Fund which has a dedicated Fund manager who is paid to do what you want. Like you there are many other people who also want to invest in similar companies. So the manager invests everyones' money together into the various companies. And gives you your share of profits of the total profits made by the entire amount in that MF. You pay a fund management fee to pay for the manager's salary and all other expenses along with all other people. So each one has to pay very small amount to get your work done by an expert.


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