Should you let your teen trade in the equity markets?

Well, as a true journalist I can assure you that I will do advocacy, but you have to take the Judgemental call.

In the USA, teen trading is officially allowed and it has reached very high numbers. In India, you do not have the ability to contract, so technically a minor cannot trade. I do not think a teen can even invest, but however, a teen can own shares that are bequeathed (Transmission) or Gifted to him by some elders. 

However, I do see parents opening an account in their own name and giving it to the children to manage. Many of the kids do trade shares, commodities, and of course Bitcoins (aka crypto-currency). 

Teaching children to earn, save, and invest is our duty as parents - and the earlier we start, the better it is for the kids. However, whether ‘day-trading’ is part of that is a big question mark indeed. Personally, teaching them about Goal setting, Compounding, Equity, Debt, and Mutual fund - far more difficult and far less sexy - is what Financial education is the need of the day!

Learning about stock scams, online scams, portfolio building, and risks, is far more important than knowing how to do buy and sell transactions. Buying and selling shares is easy - knowing what to buy, why to buy, how long to hold is a far more important thing to learn. I would rather have my kid create (build) an imaginary portfolio - and reward the kid for the profits earned. If my daughter made a profit on her portfolio (of say Rs 25000) I can put 25,000 in her mutual fund. Such offers are better - it will mean that there is learning. Also if you are a long-term investor, the rewards will have to be on a Mark To Market basis.

If you are going to allow your teen to trade, then, lay down the ground rules - no FnO, no crypto-currencies, only long-term investing, making an Investment Philosophy Statement, making a ‘note’ on all ‘Buy’ and ‘Sell’ decisions. Let the teen learn about investing with a small amount - if you must. Use this as an opportunity to make the teen write or articulate all the decisions. Teach portfolio construction, the logic for investing, accounting for dividends, capital preservation, etc. Also make rules that only ‘X’ amount will be available for one year, what shares can’t be bought (like you may not want him to buy Tobacco - so ITC is out), etc.

Meme Stocks - so Asian Paints, Sun Pharma, ITC, Hdfc - which show up in a ‘Google search’ of ‘best shares to buy could be dangerous, so your teen may not be using his brain, but just his Social Media skills and chatting skills to build his portfolio! 

Most of us have an appetite for apps. We use them for banking, mutual fund investing, airline bookings, etc. Of course, there are apps that have made it easy to invest online. Online trading platforms have many ways of attracting us to them and luring us to trade - whether it be Bitcoin or equity or Futures and Options. It is all built to attract the younger audience and make it like a game.

It is important for your teen to realize that online investing can be fast, racy, addicting and very large loss-making. Understanding the risks is very important - remember they are not earning or losing points, they are playing with real money.

PV Subramanyam
writes at www.subramoney.com and has authored the best seller ‘Retire Rich - Invest C 40 a day’