NEW YORK ( TheStreet) -- With all the news about crushing student debt and the tough job market for new college graduates, this may come as a surprise: Millennials, aka Generation Y, are pretty aggressive savers. Okay, the data are from Canada. But why would U.S. millennials be much different? The point is, whether they live in Canada or the United States, folks who start saving in their early 20s need to go about it differently than savers and investors in their 30s, 40s or 50s. A study by Toronto-Dominion Bank ( TD) found that the average Gen Y investor made the first investment at age 20, while baby boomers held off until 27. The Gen Y investors said family encouragement was the main reason they got started, while boomers cited an increase in income. In an especially surprising finding, Gen Y respondents said they invested nearly 20% of their income, and they aimed to raise that to 30% within 10 years. That's a lot. It looks like young people have been paying attention to all the horror stories about job insecurity, soaring college costs and the danger of outliving your money.
Obviously, the earlier one starts the bigger the nest egg later, whether it's for a down payment on a home, a child's college or retirement. In the latter decades of the 20th century it was reasonable to assume every dollar invested would double in real, after-tax buying power every seven to 10 years. So starting a decade earlier can make a big difference. Use this Savings, Taxes, and Inflation Calculator to play with the numbers. Also, the younger the investor the more time he or she has to wait out the markets' downturns. That means that for long-term goals such as retirement, young investors can afford the risks of stocks, which are volatile but tend to have bigger long-term payoffs than bonds or cash. But a young investor should consider investing differently for each goal. For a down payment on a home to be bought within a few years, for instance, it might be best to emphasize safer holdings such as bank savings or money market funds, even though the returns would be small. With too much in stocks, the account could be down when you want to buy a home. Stocks would be less risky, however, if the home purchase were six or seven years off, especially if it could be delayed further if the market were down.
Retirement, of course, is the goal with the longest wait. That makes it wise to emphasize stocks and stock mutual funds. For inexperienced investors, the easiest way to do this is with a target-date fund, which shifts money automatically out of stocks and into bonds as the investor gets older. Simply match the target date to your expected retirement. Many 401(k)s and similar workplace retirement plans offer target-date options. A young investor would be wise to put the maximum allowed into a tax-deferred workplace plan, or at least enough to get the largest matching contribution offered by the employer. Millennials should start saving for children's college costs as soon as each child is born. Section 529 plans offered by the states are a good choice, as gains used for college are exempt from federal income tax. Again, target-date funds are a good option for inexperienced investors. Of course, before investing heavily a young person should build a rainy-day fund to cover six to 12 months' expenses. And investing, as important as it is, should take a backseat to keeping up with payments on student loans and other debts. That's because one of your most important "investments" is building a good credit history.