Saving Money Encouraging Saving: The Thesis

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Increasing consumption taxes and capital gains taxes on investments also encourages savings rather than spending. State sales taxes are the most notable form of consumption taxes, although the federal government does have a few types of consumption taxes, such as taxes on gasoline (Ehrbar 2009). However, the government is often loath to increase the gasoline tax, given the negative impact this can have upon commerce and consumer prices. Decreasing income taxes will not necessarily encouraging savings, as consumers will have less money to both save and spend but by making consumption more expensive, savings becomes more attractive.

Lowered interest rates had a powerful effect in stimulating consumer spending behavior, and higher interest rates are perhaps the best way to encourage savings although higher or lower interest rates can be impervious to some psychological and social forces, such as the general desire to spend money over the holidays or fears of future job loss: This year, compared with the severe recession of 2008, total retail holiday sales are expected to rise 1.6% but after adjusting for inflation, the increase will be relatively flat. Consumer's fears about losing their jobs outweigh available incentives to spend more money at lower interest rates (Debit card Christmas, 2009).

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Reductions in available credit are also another factor, as banks are also shy of extending credit to high-risk consumers despite the Fed's monetary policy (Silva 2009). Some fears and recent memories cannot be overcome with government policies......

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