Question

What are ways how government could encourage it's citizens to save?

Answer 1

Savings are influenced and determined by the economic policies followed by a State (this can affect interest rates and other variables that affect savings). Changes in the interest rate, for example, can make savers feel motivated or discouraged to save. An increase in interest rates may cause savers more reasons to decrease their consumption and save, or it may have the opposite effect. At the same income levels, it depends on two effects known as the income effect and the substitution effect. Just as the increase in interest rates may encourage the first responders to consume less to save more, it may happen that, as the savings yield is higher, the expected accumulation target can be met by allocating a larger portion of the income to present consumption. . This rise in interest rates may be due, for example, to the ways in which the government obtains resources for its activities. If the government decides to borrow resources from the financial system in a significant amount, interest rates will rise.

Answer 2

In order to encourage the citizens to save, the government sometimes apply some strict economic policies like spending cuts, tax increases, or a combination of both; these practices are known as "Austerity Measures".

Tax increases can help reduce consumption; and other balancing stimulus can also be presented, like raising the retirement age for younger members of the population while creating short-term expending programs.

And sometimes in collaboration with the private sector the government launches or subsidizes pension programs , to encourage citizens to voluntarily save for their retirements.

The government can also use regulatory approaches (sometimes called "command-and-control") or economic incentives to correct for consumer behaviors.