Financial Services - Personal Financial Planning Essay

Financial Services - Personal Financial Planning - Essay Example The importance of financial planning, which is not just comprised of saving is also discussed. This paper aims to give some recommendations in order to gain the incentives of having a financial plan without being penalized by the government through its policies. It may be true that the state punishes those who save. Accordingly, there can be three most identifiable government policies that discourage savings: taxation on savings and capital; low interest rates in risk-free financial instruments; and social security and other government programs that substitute savings—the major argument of the above statement. Taxation on savings and capital. One government policy is to make provision for taxes. Taxes and government spending are part of the fiscal policy. Because taxes are included in savings account for every interest received by an investor or depositor, the taxes serve as a disincentive to save, at least in the risk-free securities in the market. Low interest rates: less incentive for delaying consumption due to inflation. Low interest rates in banks, which sometimes result in very low real rate after deducting inflation, give consumers very little incentive to save. Due to the time value of money, consumers might as well save as their dollars are worth more for the current, than delay consumption because the reward is not huge enough for them to be compensated. Social Security and other government programs substitute savings. With more government programs that are available to the public that substitute the role of savings, the public does not find any other reason to save behind such safety net. The prevalence of these programs that are part of the policies of the government, seem to be enough for the public which does not give additional incentive to save. While people are discouraged by the government to save through its various policies that penalizes the savers, the future’s uncertainty is the major motivation behind all personal