How can the Government ask us to save hen interest doesn't keep up with inflation?

Question

And investing becomes too risky?

Answer 1

Congress has structured the tax system specifically to discourage saving and to incent borrowing and current consumption. Your real after tax return on buying a CD, for example, is negative. Why they would want to do this, I can't say.

Answer 2

The reason investments pay more than inflation is because  you are taking a risk. Risk free  interests rates usually average near zero after adjusting for inflation and taxes. You save for yourself not the government, and not having any savings to guard you against unexpected bad times is the most risky thing you can do, particularly at a time when the government  is overburdened with commitments for future needs.

Edit. Risky means that you do not always get  the average returm or even a positive return.

Answer 3

It's tricky, they just try to transfer loses from one group of population (who will not save) to another (who will save, thus will loose part of accumulated wealth due to risks and inflation). If someone doesn't want to bear burden - then it does such tricks, relying on population who are financially incompetent.

Of course it may have some benefit too, but only if majority will save (but who will not - comparatively will benefit) - if aggregate behavior will be saving-type,  then inflation will slow-down for everyone, economy and investment will stabilize. It all is part of game-theory.

But in general you are right from perspective of microeconomics, they just ask you kindly to sacrifice part of savings (which you will loose due to risks and inflation, partially transferring your wealth to another gainers) to stabilize economy.

Actually there is sort of optimal balance for each member of society regarding how much to save and how much to consume. In simple words it says that if your utility from consuming NOW is higher than from "save->loss due inflation/risks->consume later(and less due to loss)" chain then you should consume (spend) now. If it is opposite, then react accordingly (combinations of behavior are also possible in some proportions).