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Young money: Why Generation Y needs to start investing now

When it comes to bad financial advice, Generation Y has seen it all. From the market collapse to the housing bubble burst, 20- and 30-somethings have witnessed more economic hardships than most previous generations combined. Which has led many financial experts to wonder how this age group will handle the task of planning for their own financial futures. Will Generation Y face similar financial difficulties as their parents? What kind of frustrations are they already encountering?

According to a survey by Merrill Edge, the investment management partner to Bank of America Corp., young people are proving to be far more cognoscente of the fragility of their finances than previous generations. As such, they're discovering that the earlier they start saving for retirement and the longer they work, the more they'll have available when they're finally able to use it.

[More: Today’s teens: Big dreams or unrealistic career expectations?]

An inconvenient education

It's not surprising that members of Gen Y are actively looking for ways to change their saving and investing behaviours based on the financial turmoil they've grown up in. Born between 1979 and 1991, Generation Y had the unpleasant experience of coming of age in an unstable world. Today, these young adults are dealing firsthand with the aftermath of the Great Recession, as well as the issues that arise within a bounce-back economy.

Many young people are choosing to face these challenges head on, seeking advice on how to proactively manage their finances starting now. While this generation might not have a lot of cash to work with, they're forming investment habits that will benefit them throughout their adult lives, something their parents pushed off until much later.

Here's the smart moves many millennials are making (or should be):

1) Know your options

The investment world can get confusing quickly, especially if you're unfamiliar with the marketplace. Many members of Gen Y find themselves faced with the overwhelming question of "where do I get started?" Should the focus be on paying off student debt or investing in stocks? Are mutual funds the best option for steady growth, or is real estate a better long-term choice? When confronted with so many choices, the easy option is simply to avoid making any decision at all.

[More: Lifestyles of the poor and educated: How Generation Y is establishing new financial norms]

In order to find their bearings amid a wave of options, members of Generation Y are spending more time educating themselves on the opportunities that are available. While you don’t need to be a financial expert to make your first investment, it pays to know your way around your portfolio and seek proper professional guidance. Understanding your personal barriers and risk levels are important first steps to investment success.

2) Keep an eye to the future

Investing in a down economy might seem like a scary proposition, however it shouldn't be for members of Generation Y. Young 20- and 30-somethings are in a different investment position than their Boomer parents, who can no longer put money into their retirement funds (there simply isn't enough time for them to wait for the market to turn). Members of Generation Y have the luxury of time; as such, young adults shouldn't let current economic concerns affect their investing risk tolerance. Instead of seeing the glass as half empty, this is the perfect time for the younger generation to take an optimistic half full approach. Remember: when prices are down, investing returns increase decades down the line.

[More: Everything you need to know about student loans (and how to pay them off)]

3) Find money to invest

Do you know where your money is going? Knowing what you spend and how you spend it is an important part of investing. This is how you'll "find" the money you need to start an investment plan. In starts with monitoring and adjusting your variable expenses in order to free up some cash each month. This doesn't have to be a huge amount in the beginning, just enough to enable you to start building those foundational financial habits. Over time, you'll be able to put a greater portion of your earnings into investing.

4) Learn how to invest

There's a clear difference between getting rich and saving for your future. While many Boomers were tempted by hot stock tips, day trading, and other alternative investments, members of Generation Y have become skeptical of these approaches, and for good reason. These flashy financial formulas are often dubiously designed to ‘make you rich’, rather than help you save.

[More: How to save a cool million starting at age 25]

Young adults are better off to stick with the buy-and-hold strategy in order to build long-term investment opportunities. Patience is a virtue, after all. Resist the temptation to play the market; instead, buy stocks with fundamentals. If Generation Y has learned anything from their Boomer parents, it's that when it comes to your finances you can't afford to get burned, not even once.

5) Don't dance with debt

Debt did the Boomers in, and it's coming after Generation Y with an equal vengeance. The average Canadian household now has just 63 cents of disposable income for every dollar of debt, according to numbers released by Statistics Canada in mid October. That's the highest ratio of debt-to-income ever recorded in Canada.

Now more than ever, Canadians need to learn how to live a debt-free life. Live within your means. Don't overspend. Build a budget and stick to it. Forget about owning the latest smartphone or flat screen television. Living this type of lifestyle could push you over your own personal fiscal cliff.

Young and in control

While time might be on their side, members of Generation Y still need to get a move on it when it comes to planning their investment portfolio. From education to implementation, there’s no better time to take control of your financial future. The time is indeed NOW. is a free personal finance and education site for women.

Nothing contained herein is intended to provide personalized financial, legal or tax advice. Before implementing any financial strategy, you should obtain information and advice from your financial, legal and/or tax advisers who are fully aware of your individual circumstances.

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