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Title: How to save money
Little blue book no. 1004
Author: J. George Frederick
E. Haldeman-Julius
Release date: February 17, 2026 [eBook #77970]
Language: English
Original publication: Girard: Haldeman-Julius Company, 1926
Credits: Tim Miller and the Online Distributed Proofreading Team at https://www.pgdp.net
*** START OF THE PROJECT GUTENBERG EBOOK HOW TO SAVE MONEY ***
Transcriber’s Notes:
Underscores “_” before and after a word or phrase indicate _italics_
in the original text.
Equal signs “=” before and after a word or phrase indicate =bold=
in the original text.
Small capitals have been converted to SOLID capitals.
Typographical and punctuation errors have been silently corrected.
LITTLE BLUE BOOK NO. =1004=
Edited by E. Haldeman-Julius
How to Save Money
J. George Frederick
HALDEMAN-JULIUS COMPANY
GIRARD, KANSAS
Copyright, 1926,
Haldeman-Julius Company
PRINTED IN THE UNITED STATES OF AMERICA
CONTENTS
Page
Foreword 5
The Will to Save 9
The Psychology of Saving 10
The Challenging Facts of Average Life Histories 14
Training the Young to Save 16
Letting Your Savings Work for You 17
Budget Control to Make Savings Certain 19
How Shall Savings Be Invested? 25
Investing in Mortgage Bonds 31
“Baby” Bonds 32
Acid Test for Bonds 33
Buying High-Grade Common and Preferred
Stocks on Installment 34
Savings and Interest Rates 37
Various Types of Savings Banks 43
Savings Through Insurance 49
Savings Through Employers 53
Group Insurance Plan 57
The Individual Worker’s Capital Value 61
HOW TO SAVE MONEY
FOREWORD
The whole round world is gradually becoming economically literate and
self-reliant, because sound ideas of economic foresight are everywhere
being spread. The U. S. Ambassador to Spain reports, for instance, that
the “mañana” spirit (“put it off until tomorrow”), which has been one
of the time-honored economic hindrances in Spain and Spanish-American
territory, is now disappearing.
The principle of saving is pre-human; it is a biologic inheritance
from our ancestry, for a squirrel, an ant and bee are models of saving
wisdom. A human being, with his greater brain capacity and richer
store of folk-lore and racial memory, should be the most invariably
forehanded of all the creatures of earth. He is not, however. Economic
literacy has not been present, and is not today present, in many,
many millions of people. They display a laxity and a blindness to the
hard facts of the struggle for existence which no one of many lower
creatures than man ever displays. The possession of a human brain has
not seemed to lift such humans up to the coordinative previsioning
level of adjustment to environment which is displayed even by some of
the very lowest order of living things. Even a jelly fish is a primeval
kind of savings bank.
But world-wide concentration on economic well-being, world-wide
inter-communication of ideas, and consequent increase in variety of
desires, are now beginning to tell, even in countries in the Orient
where religious and philosophic ideas have repressed the economic urge
toward accumulation. The deeper economic class-consciousness of labor
everywhere has been another vital factor, particularly in America,
where labor concentrates more on economic welfare than on political
action.
In America, however, the ordinary man’s concentration on his financial
welfare has as a rule been mainly toward _earning_ more and
_spending_ more, rather than on _saving more_. Individual for
individual, the French peasant is a far more _saving_ person than
the American farmer, for the typical American farmer usually puts his
profits into additional equipment, more land, more education for his
children, more comforts for his family. The result is that he is rather
habitually in an inflated financial condition, and has not the cash or
security accumulations of the French peasant.
The American workman, too, has been increasing his standards of living
as fast as his earning power has risen, and since 1925 has been drawing
close to inflation also, through the dubious device of the instalment
plan. At the same time, it is true that he has never had more money in
the savings bank nor more investments and insurance in force. He is
saving more, but by no means in sound proportion to his earning power.
In view, therefore, of the incontrovertible facts uncovered by
insurance companies, that the great majority of men at 65 years of age
are dependents, it seems that one of the great needs of the century in
America is that the idea and the precise methods of systematic saving
be spread broadcast and thus become more universally practiced. All
the more imperative does this need become in view of the additional
fact that we are rapidly lengthening the average span of life. In the
year 1500 the average man had an expectation of only 25 years to live.
This seems incredible, until you know how men lived in those days even
in London--in huts with earthen floors covered with filthy rushes;
eating bark, peas, and roots, and possessing neither cotton nor woolen
clothing, only ragged dirty leather, never removed, and mere straw
whisps tied to the body if poor. As late as 1880 the expectation of
life in America was 45 years. Today it has risen to 58, and is still
rising. Consequently we have more years of old age to provide for than
even our grandfathers and fathers. This is an extremely, important
consideration. So is the fact of our constantly rising standard
of living, which makes yesterday’s plenty seem scanty tomorrow;
yesterday’s adequate saving tomorrow’s inadequate provision. So also is
the increasing delay before young men and women become earners and can
marry; so also the increased demands of modern life for educating the
young--demands which drain the parental purse in a manner not known in
former generations.
Saving, as an economic science for the individual, is thus looming as
particularly important for every person, young or old, male or female.
The modern economic independence of woman has made saving woman’s
problem as well as man’s. The subject is one which should be studied
even by young people, and in fact should be taught in schools. It has
a far more potent relation to individual and marital happiness and
general social well-being than it is generally credited with in a land
where lavishness and free spending are the order of the day, and where
there prevails a timid fear of being regarded as “tight.”
In a significant manner this is illustrated by the fun poked at
President Coolidge for his thrift, which, derived from an older and
sterner Yankee standard, is now a somewhat neglected and half-despised
virtue.
To summarize, there are seven powerful modern reasons for training for
saving:
(1) The acquirement of personal dignity, welfare and
self-respect in an economic world.
(2) The ability to marry and start a family without
delay at the mating period.
(3) The ability to attain the special security and
satisfaction of an owned home.
(4) The ability to fund the adequate education of
children to enable them to meet the competition of
modern life.
(5) The ability to engage in business or other
enterprise which fits one’s faculties and
ambitions.
(6) The ability to provide for the exigencies of our
lengthened old age.
(7) The ability to bequeath, at death, to those
dependent on us.
THE WILL TO SAVE
The absolutely primary requirement for systematic saving is _the
will to save_--not a mere momentary impulse to save, not a mere
general desire to save, but _the effective establishment of a fixed,
disciplined habit of saving_.
Success in anything is quite largely a matter of will-power, and
bromidic as the advice may seem, the man or woman who cannot stiffen
his spine and set his jaw with sufficient resolution to say “I will
save” lacks the essentials for overcoming those obstacles which lie in
the pathway of everyone striving for any purpose or ambition.
Anyone in the income level above bare necessity who is not sufficiently
interested in his or her own welfare to lay by a certain portion of
earnings for the future either is irresponsible mentally or does not
care what bitterness the future may bring. The creation of habit is a
mechanical process. There is no mystery about it. William James has
described it in detail. The human mind responds splendidly to a sincere
habit-creating determination. The first result is something like a
hurt. It is like the cut of a knife in living tissue. That is why
people shrink from habit-forming, unless it be habits simply following
the line of animal pleasure. Each time the discipline is applied,
however, the pain is less, and the human organism soon adopts itself to
the new habit, and even learns to change the pain to pleasure. It is
later painful to _break_ the habit.
The saving _habit_, the saving _thought_, the saving
_will_ are the keys to successful saving, and, in the measure that
these are achieved, to that degree will there be success in saving.
The most typical situation in regard to saving is an _occasional_
realization that saving should be accomplished, and a sincere effort
is often then made. But within a few weeks, or a few months, or a few
years, according to the strength of character of the individual, the
impulse, _because it is not disciplined and forged into a fixed
habit_, is lost, overwhelmed by stronger habits and impulses.
THE PSYCHOLOGY OF SAVING
The truth is, of course, that the will is not master of us at all
times, and in fact at few times. The findings of modern psychology
indicate how much we are creatures of instinct and emotion.
The grave error as to saving which most people make is the failure to
hitch the saving idea to a really powerful instinct or emotion. It
is true that Acquisition, Economy and Accumulation are authentically
listed among the human instincts. But there are so many _other_
instincts which in a prosperous country like ours dull and diminish
the accumulation instinct, that there is a losing fight put up by
the saving instinct. For instance, among the other human instincts
are Rivalry, Curiosity, Family Affection, Sex Love, Ego, Display,
Construction, Imitation, Play, Pugnacity, Social Cooperation,
Leadership, Pride, Hospitality, Sympathy. These instincts are
constantly breaking down the Economy and Accumulation instincts,
_except insofar as they cater to the satisfaction of these other
instincts_. Thus we have millions of people in America who work hard
and earn a great deal of money, but who are also the most prodigious
_spenders_ in the world. They are not great savers.
Psychologically, what has happened is that, like our sense of smell,
our sense of accumulation and economy is blunted by disuse. It is
always in a country where living conditions are _hard_ that the
instinct of accumulation and economy sharpens and develops. The Scotch
and the New Englander (both living in stony countries) have developed
these qualities to a point where it is part of their tradition. The
old joke about the Scotchman’s purse, out of which, when he opened it,
flew a moth, is one of hundreds of similar jokes. President Coolidge,
as embodying the New England Yankee tradition of “closeness,” has the
authentic tradition of Yankee thrift behind him, based also upon the
hard-won accumulations of our Puritan ancestors.
Disuse of an instinct relaxes and rusts it, and in the last twenty
years this has occurred to large numbers of Americans. The savage who
lives in a land of luxury soon dulls his hunting instinct and his
marksmanship; and if he suddenly is again thrust into hard conditions
he dies. Whole tribes and even whole races of men have disappeared,
for probably no other reason than that of living in soft luxury until
a natural cataclysm put them up against conditions of which they were
once masters, but had lost the power to conquer.
_The instinct to accumulate is basic and should not be permitted to
atrophy in any human being._ The span of life inevitably brings
most of us at some period to a point where we suffer if we do let it
atrophy. (Naturally, of course, it should not be permitted to become
abnormal or obsessing, either.)
How shall this atrophy be prevented, psychologically? It is best
accomplished by routing all instincts over the “long circuit” in the
mind; that is, subjecting all of them to review before the tribunal of
reason. Most instincts are permitted to travel over the “short circuit”
of the mind; that is, the feeling is permitted to arise and flow into
expression and action before there is any attempt at correlation of
ideas or the use of judgment. The ideal that made the Greeks the most
balanced super-humans of all history was undoubtedly their dictum
“_of nothing too much_.” This required long circuit mental
processes; a brake of reason upon the crude excrescences of instinct
and emotion. As Christopher Morley says in _Thunder on the Left_,
if hunger can keep from taking the food within its reach, then is the
life of the spirit begun. Also, then, is the saving instinct preserved
in the modern welter of plenty; together with the fine character
balance which is represented by “thought for the morrow.”
It should be pointed out also that _decision_ plays a vital part
in saving. Psychologically speaking, decision (in the words of Prof.
H. L. Hollingsworth, of Columbia), is “only another name for the final
outcome of the rivalry of competing ideas or instincts.” Thus we see
how important it is that the rivalry against the saving idea be not
made unfair and disastrous, by opposing against it Display, Imitation,
Hospitality, Ego, Rivalry, Ostentation, Curiosity, Envy, Jealousy
and other instincts which break any decision to save. The instincts
which _aid_ the saving instinct are Love of Family and Home,
Construction, Social Cooperation, Leadership, Civic and National Pride,
Self-Dependence, Sex Love. Many a young man never saves a penny until
he meets a nice girl he wants to marry; or until he gets tired of
wandering and develops a desire for a fireside.
THE CHALLENGING FACTS OF AVERAGE LIFE HISTORIES
Theory or optimism is one thing regarding saving and its vital place in
human economy--but the cold, hard facts, _checked after the funeral
is over_, are quite other things. Even in a land of comparative
plenty like America the baring of the secret closets of life indicates
how men and women live and die in relation to financial dependence or
independence.
The American Bankers’ Association made an analysis some few years ago
as regards 100 average men, which rips the doors open. The average
situation at various ages, for men only, is as follows:
_Age 25_
100 Average men, healthy and vigorous in mind and
body and dependent upon their own exertions
for their support.
_Age 35_
5 have died
10 have become rich
10 are in good circumstances
40 are in moderate circumstances
35 have not improved their condition
_Age 45_
11 more have died, 16 in all
4 only are rich, all the others rated at age 35
as having resources having lost their accumulation
65 are still working, and are self-supporting,
but without other resources
15 are no longer self-supporting owing to illness,
accident, etc., a few still earning something
but not enough for self-support
_Age 55_
4 more have died, 20 in all
1 has become very rich
3 are in good circumstances, but not the same
3 quoted at age 45, for one who was rich at
45 has lost everything, and another not
rated rich at 45 has taken his place
46 still are working for their living, without
any accumulation
30 are now more or less dependent upon their
relations or upon charity for support; some
still able to do light work are being replaced
by younger men
_Age 65_
16 more have died, making 36 in all out of 100
1 is still wealthy
3 are rich, 1 of those who lost everything before
45 having again become rich
6 still at work; self-supporting
54 are dependent upon children, relations or charity
_Age 75_
27 more have died, making 63 in all, 60 of
whom left no estate
2 only are rich, three who were rated as rich
at 65 have lost their accumulation
35 are dependent upon children, relatives or
charity. These old men will die off rapidly,
but their financial condition will not improve,
and 33 of them will not have sufficient means
to defray funeral expenses unless insured
TRAINING THE YOUNG TO SAVE
Nowadays we realize as never before the great importance of bending the
sapling as we want the tree to grow; when we know that even very young
children are greatly susceptible to special training. Therefore start
teaching children saving at the age of 3 or 4 years.
Get them a savings bank, of interesting shape and kind, and provide
them with special saving incentives, such as the purchase of a
particular toy, or for Christmas presents, etc. But to be effective
such training must see to it that the child is given the reward for
which he is saving about every 30 days. If it is delayed too long
the child loses interest. It is also important to have the child
_earn_ the money it saves by some services over and above its
normal duties.
Children, once they go to school, can connect with school savings
banks, or special savings plans operated by banks or other
institutions. But a child should _always_ be in process of saving,
and should be put on an allowance as soon as it goes to school, and be
trained to keep an account book. This is not only fun if handled in the
right way, but business education.
It should be a principle rigidly observed with children all the way to
maturity, _that no wish of theirs for anything valuable is granted
unless they go through a period of expectancy and saving for it_.
Lavish giving of presents, even of toys, destroys valuable qualities in
children, or hinders their development. Even rich parents are nowadays
paying far closer attention to these things, as they realize that
riches can unfairly ruin the young before they can become mature. Rich,
spoiled young men are to be pitied rather than envied. The tendency of
parents is to earn and save in order to lavish money on their children;
whereas if they really love their children they will inculcate the will
to save and the self-reliance which they themselves have attained.
LETTING YOUR SAVINGS WORK FOR YOU
It is hard for many people to grasp the fact _that money is a wage
earner, like themselves_. Money saved is like having a helper to
decrease your working burden. It can be planned _so that it finally
can take over your “job” and earn as much as you do_. Then you will
not have to work at all to live, unless you wish to do so.
Money is not something to hide in a hole in the ground or put in a
miser’s secret bag to gloat over. It is something to dress in overalls
and send out to do its normal day’s work for you.
Despite the time and attention the potential saver may give to
accumulating money, if he does not know how to invest it wisely and
safely his time has gone for naught. Money depreciates far faster than
it accumulates, and it is of the utmost importance that the saver
devote as much care to finding a way to invest his money as he does to
accumulating it.
_Adult investment-saving should commence at twenty years of age if
possible._ If the investor has missed his chance of commencing he
should begin “as soon as possible.” It is never too late to begin, as
the handicap of tardiness may be overcome by the sure, swift work of
compound interest.
The important accumulations of capital by some of our most prominent
rich men have not been the result of chance, accident, speculation nor
even hard work solely on the part of the individual. The hard work has
been at the instance of their initial accumulation, which has been made
to move early and efficiently. When money works systematically it knows
neither the dinner-gong nor bedtime. This is not a rosy dream--money
cannot, of course, make everyone affluent--but the earning power of
invested savings is a sound business principle. If it were not for
invested capital, modern business could not exist.
BUDGET CONTROL TO MAKE SAVINGS CERTAIN
It is impossible to save systematically unless expenditures are made
under some form of control, and on a basis of sound apportionment. This
is the method known as the budget system, first applied to government
expenditures with success, and now widely applied in business, in
household and in personal expenditures.
The budget has aptly been termed “a plan of spending money in advance
of actual disbursement.” The most approved budget divides or apportions
the salary or income according to six divisions--Shelter, Food,
Clothing, Operating, Savings and Advancement. These standard divisions
are based on the needs of every individual and every family. The budget
depends on the amount of income, and on the prices of products. It is
also determined to a large extent by the following factors: (1) the
aim and standards of the family; (2) the number of individuals in the
family, and their ages; (3) the location, or residence, whether city,
small town or country; (4) the occupation of the wage-earner.
Two general principles are involved in working out budgets. The smaller
the income, or the more children per income, the greater the percentage
of it you will have to spend on the three necessities--Shelter, Food
and Clothing. Again, the larger the income, the larger the percentage
which may be spent on the last three divisions--Operating, Savings and
Advancement. People with incomes around forty or fifty dollars a week,
can spend only about five percent, for Advancement, while those who
have incomes around sixty dollars and over a week can give from fifteen
to twenty percent to Advancement or to any of those interests which can
be classed broadly as “higher life.”
A workable, successful budget can only be made by keeping a record of
previous expenditures. Keeping accounts in detail is advisable in order
to furnish a basis for future and better-planned budget spending. Buy a
blank book ruled with about twenty-five columns. Give one column to
each particular item, such as Groceries or Milk, and arrange these
under a main heading, in this case Food. Write down the amount you
spend for each item on its proper date. At the end of each week add up
your accounts and compare them, with the ideal budget given on this
chart for your particular income and family.
The following are the budget figures carefully worked out by Mrs.
Christine Frederick, author of “Household Engineering,” and founder of
Applecroft Home Experiment Station, Greenlawn, Long Island. They are
concretely figured in dollars and cents for various sizes of families
and various incomes,
_2 Adults, 2 Children: $40 Weekly_
Shelter 25% or $10.00
Food 34% or 13.00
Clothing 18% or 7.20
Operating 13% or 5.20
Savings 5% or 2.00
Advancement 5% or 2.00
_2 Adults: $50 Weekly_
Shelter 18% or $9.00
Food 25% or 12.50
Clothing 20% or 10.00
Operating 12% or 6.00
Savings 15% or 7.50
Advancement 10% or 5.00
_2 Adults, 3 Children: $50 Weekly_
Shelter 25% or $12.50
Food 18% or 19.00
Clothing 19% or 9.50
Operating 13% or 6.50
Savings 3% or 1.50
Advancement 2% or 1.00
_2 Adults, 3 Children: $60 Weekly_
Shelter 20% or $12.00
Food 30% or 18.00
Clothing 18% or 10.80
Operating 15% or 9.00
Savings 9% or 5.40
Advancement 7% or 4.80
_3 Adults, 2 Children: $70 Weekly_
Shelter 25% or $17.00
Food 34% or 23.80
Clothing 18% or 12.60
Savings 13% or 9.10
Advancement 5% or 3.50
Operating 5% or 3.50
_2 Adults: $75 Weekly_
Food 18% or $13.50
Clothing 25% or 18.75
Operating 16% or 12.00
Savings 15% or 11.25
Shelter 12% or 9.00
Advancement 14% or 10.50
_2 Adults, 3 Children: $85 Weekly_
Shelter 20% or $17.00
Food 25% or 21.25
Clothing 18% or 15.30
Operating 17% or 14.45
Savings 10% or 8.50
Advancement 10% or 8.50
_3 Adults, 2 Children: $100 Weekly_
Shelter 19% or $19.00
Food 25% or 25.00
Clothing 20% or 20.00
Operating 18% or 18.00
Savings 12% or 12.00
Advancement 6% or 6.00
_Business Women: $25 Weekly_
Shelter 25% or $6.25
Food 40% or 10.00
Clothing 18% or 4.50
Operating 6% or 1.50
Savings 6% or 1.50
Advancement 5% or 1.25
_Business Women: $40 Weekly_
Shelter 23% or $9.20
Food 30% or 12.00
Clothing 25% or 10.00
Operating 7% or 2.80
Savings 10% or 4.00
Advancement 5% or 2.00
_2 Adults, 2 Children: $30 Weekly_
Shelter 22% or $6.60
Food 45% or 13.50
Clothing 20% or 6.00
Operating 10% or 3.00
Savings 2% or .60
Advancement 1% or .30
_2 Adults: $35 Weekly_
Shelter 20% or $7.00
Food 35% or 12.25
Clothing 20% or 7.00
Operating 10% or 3.50
Savings 10% or 3.50
Advancement 5% or 1.75
Definitions of the standard budget divisions will help to clear up some
questions:
Shelter covers the rent of your house or room. If the house is owned,
then the total yearly expenses of taxes, insurance, repairs and general
upkeep should be divided by twelve, and this estimate set down for each
month. If farm or parsonage is free, nevertheless such value should be
estimated and included. Shelter also covers carfare or transportation
to both work and school. In the case of some rented apartments and
houses it also covers coal or heat, in which case this amount is
deducted from the division entitled Operating.
Food covers the cost of food materials and products used in the
preparation of meals, also board and meals eaten away from home.
Clothing covers the cost of ready-to-wear garments of every type. It
covers the cost of materials and supplies for making clothing at home,
the expense of a dressmaker or tailor, cleaning, repair and pressing.
Operating covers the cost of fuel, light, telephone and ice. It also
covers the expense of a maid, laundress, or laundry and its supplies.
It includes any service paid for by the hour, day or month; the cost
of furnishings, and labor-saving or other household appliances, their
repair or replacement.
Savings covers all payments on property; on all kinds of life and
beneficiary insurance; on bank savings deposits, stocks, bonds and
other legitimate investments.
Advancement covers sanitation, health and toilet articles, doctor
and dentist expense. It also covers educational expense, and items
of amusement and recreation, such as books, periodicals, music,
the theater, vacation and travel. This division covers also such
miscellaneous items as clubs, charity, organization dues and the like.
HOW SHALL SAVINGS BE INVESTED?
_The greatest mistake of the American saver is to invest
unwisely._ It is estimated that over three billion dollars have been
unwisely invested in fake or questionable oil stocks alone in recent
years. Despite precautions, a billion dollars a year is at present
dissipated in “cat and dog,” or worthless, stocks.
The reason is that the American _is an inveterate chance-taker_.
He carries this principle with him in handling his investments, and
does not realize that it has little place there. Investment for the
ordinary man should be Grade A and Grade B and C risks exclusively;
never grades D, E, F or greater risks. A Grade C investment is quite
“chancy” enough; a Grade B is more reasonable. Grade A is safe.
Naturally the yield is lower on Grade A investments, but sometimes
there is no yield at all on lower grades!
Contrary to general belief it is not necessary to put off the pleasure
of being an investor indefinitely for lack of a large surplus.
The greatest fortunes have been founded on a steady and consistent
accumulation of capital, starting with extremely small sums. Much
larger sums than it took to start these large fortunes have been lost
by individuals endeavoring to get rich too quickly.
Any sum is a start--even a dollar. There are now many banks which will
gladly open a savings account with one dollar. _It is not the amount
but the systematic method that counts._ The savings bank is the natural
first field of action for savings--especially on a regular deposit
plan. It is only when the sum gets to $500 or $1000 that “investment”
of a different kind should be considered--and then it should be
_government bonds_. The saver should write a letter to his banker or
broker, and enclose an order to buy “at the market” government bonds
(any issue) for the sum he has ready to invest. The saver cannot go
wrong if he does this.
The following might be regarded as a general schedule of instructions
for savings investment, based on the amount of total available savings:
If you have from $1 to $100, _put it in the savings
bank at 3% or 4% interest_.
If there is no savings bank available, use the
Government (Postal) Savings Stamps. Inquire at your
post office.
If you have from $100 to $1,000, buy Government bonds,
Treasury Certificates, Liberty and Victory issues, etc.
If you have $1,000 to $5,000, consult your bank and
buy high-grade bonds of various kinds.
If you have $5,000 to $10,000, consult a conservative
investment banker, and buy a _diversified_
line of securities; bonds, higher grade preferred
stocks and some high-grade, dividend-paying common
stocks, if general business conditions are not at a
high peak or inflated.
If you have more than $10,000, select most carefully a
very capable banking house which will not endeavor
to sell you many of its own special issues, but
will properly diversify, on a still wider scale,
your stocks and bonds; selecting a still wider
range of industries, and purchasing more preferred
and common stocks of well known, stable successful
industrial, railway and public utility companies.
Have them pay particular attention to common stocks
of such companies, for about 20% or 25% of your
total investment.
Liberty Bonds and Victory Notes have the highest investment rating
in the world of finance; they are more gilt-edged than any other
bonds ever issued by nations or corporations; they even come ahead of
British Consuls and French Rentees, which, prior to the World War,
ranked foremost among investments. The owner can always borrow on U. S.
Government Bonds, if borrowing becomes necessary.
Among all the securities one could buy none rank so high nor are
so convenient from the point of view of marketability, ease of
liquidating, and collateral value as good bonds. One need seldom take a
loss in good bonds through forced selling. There is little fluctuation.
It is better to hold gilt-edged bonds, the kind banks lend money on.
These usually consist of U. S. Government bonds or a certain class of
high-grade corporation and railroad issues that have been passed on
by the savings banks. Others are so highly rated as to be eligible
for trust funds, and a medium for the conversion of inheritance
funds, insurance funds and the like. You can buy short-term issues if
the money may be needed in a few months or a year or two; otherwise
select long-term bonds. Then hold them and continue to do so. When you
need money borrow on them, even to buy other sound securities like
gilt-edged preferred stocks and the best-rated common stocks. You need
never part with your original investment in bonds if you follow this
suggestion.
Securities in general may be rated in their order of investment merit
as follows:
_Bonds_
A. “Gilt-Edge” bonds
B. High-grade bonds
C. Medium-grade bonds
_Stocks_
A. High-Grade preferred stocks
B. Medium-grade preferred stocks
C. Speculative preferred stocks
B. High-grade common stocks
C. Medium-grade common stocks
D to Z Speculations
The shrewd buyer will always discover some bargains if he will do his
shopping on the common-sense principle that it does not pay to wait
until everybody wants the same goods at the same time. The saver will
do well to sharpen his own knowledge of investments.
He should pick up his bargains in the off-season, place them in
“cold-storage” and only lighten his load when everybody wants them at
once, at any price, and for immediate delivery. There is no better way
of determining when the bargain season is on than by watching the daily
newspapers. Never buy preferred or common stocks when business is in
a period of inflation or at a peak of prosperity. The time to buy is
when conditions are at a lower ebb, when the stocks of absolutely sound
companies are selling cheaply. It is good advice to buy only stocks
listed on the New York Stock Exchange--the list of which is printed and
quoted every day in leading newspapers.
Bonds often go up when stocks go down. As a general proposition any
bond which is a direct mortgage, on property valued largely in excess
of the bond issue--where the issuing corporation has shown its ability
to meet interest charges, year in and year out, by a large and ample
margin--is a good bond.
It is difficult, however, for the average business man to investigate
the value of the underlying securities, to judge them even after
lengthy study, or to decide whether a particular mortgage is
“clear-cut,” without reference to mortgages preceding or following it.
Also, no ordinary man is competent to pass upon the legality of an
issue or the titles back of a mortgage. This requires a complete
battery of specialized talent, especially in the case of corporation
and railroad bonds. Such information is always on hand with your banker
or broker, and if you ask his advice he will always be glad to assist
you.
It is well to rely upon the banker who makes a business of
investments--but he should be a conservative banker of good repute.
Always, without fail, investigate your banker. Be suspicious of lurid
advertising and follow-up. As a general rule the higher the interest
yield the more risk the investor takes. Don’t be greedy; be content
with moderate return _and safety_.
INVESTING IN MORTGAGE BONDS
There are now a number of companies formed to purchase first mortgages
on new buildings, apartments, etc., and resell them to the small
investor for a series of payments. They specialize on first mortgage
bonds. _It is a good method, but be sure of your company._ In
order to define a first mortgage bond it is necessary first to explain
what a first mortgage is.
A mortgage is a legal paper covering a pledge of real-estate holdings
given by a borrower of money to a lender. The mortgage is held either
by the lender of the money or by a third party, known as the trustee.
Any mortgage represents the promise to pay a stated amount at a
specified time, at a legal rate of interest, and it transfers title to
the mortgaged property only in case the money for which the security is
given is not repaid. A first mortgage, therefore, is any mortgage filed
of record which precedes all other claims in the event the property has
to be sold to pay the holders of the mortgage or other creditors.
As has been stated above, every first mortgage bond is a direct first
lien on the property securing the issue. The importance of this
fundamental factor in investment safety would seem to be self-evident,
but it is a fact that the investment market is flooded today with a
vast number of securities, many of them regarded as conservative, which
do not even represent a legal obligation to pay, and which are entirely
dependent upon the prosperity of the issuing corporation for their
payment. The term “bond” is often a misnomer, the so-called bond being
merely a chance to share in profits, _if there are any_. It is no
different from a stock; they are debenture bonds, not secured bonds.
They should be very carefully scrutinized.
“BABY” BONDS
Although bonds are usually issued in one thousand dollar blocks, of
late years many corporations have split their bonds up into “baby
bonds,” or bonds of one hundred dollar value, in order to gain the
participation of the small investor and saver.
For example, among the high-grade (A) “baby bonds” for income only, the
author would recommend to the prospective investor such issues as the
following: Atlantic & Danville, 1st 4s, 1948; Bush Terminal Buildings,
5s, 1960; Western Union Telegraph Co., 6½s, 1936, and Armour and Co. of
Del., 1st 5½s, 1943.
In the middle-grade (B) list for income and profit there are Cuba
RR, 1st 5s, 1952; Western Pacific, 1st 5s, 1946; New York, Ontario
and Western, 1st 4s, 1992, and Kansas City Southern Refunding and
Improvement, 5s, 1950.
Among the more speculative (C) bonds for income and profit, also in the
“baby bond” class, come the Erie General Lien, 4s, 1996; Chicago Great
Western, 1st 4s, 1959, and Chicago, Milwaukee and St. Paul Convertible,
5s, 2014.
The writer urges that thought be given to this and similar bond lists
so that the student investor may become familiar with the yield he can
expect from most types. A study of the figures at which these bonds are
selling, together with the figures of their yield, etc., will indicate
what is meant by a “high-grade” bond and a “medium-grade” bond.
ACID TEST FOR BONDS
What might be called an acid test of the reliability of a bond is a
satisfactory answer to the following questions:
(1) How many times on the average have interest charges
been earned annually in the last five years?
(2) For how many years has the corporation paid full
interest on its funded debt without default?
(3) Is the bond I intend buying followed by other
strong bonds for preferred and common stocks?
(4) What is the record of dividends paid on its
preferred and common stocks during the past seven
years?
BUYING HIGH GRADE COMMON AND PREFERRED STOCKS ON INSTALLMENT
Here is an unusually good saving plan--a form of investment that has
the triple advantage of furnishing (1) good dividend-earning security,
(2) possibility of material increase, and (3) fixed obligation to pay
on certain due dates, which acts as a disciplinary saving system.
The difference between a preferred and a common stock is that the
interest charges on the former, while not guaranteed, will be paid
at the named rate before the common issue can secure any part of the
profits. The only disadvantage is that a dividend on a preferred stock
is limited to a stated amount, while over a period of years the common
stockholders of a sound company may expect not only to get a rise in
dividends rate, but possibly also stock dividends or “split-ups,” and
also a general increase in quoted value. There are economists today
who contend that the soundest, surest way to let your money’s value
grow with the country is to invest in the common stocks of very sound
concerns, the leaders in their field.
It is true there is always an element of speculation in buying common
or preferred stocks, and a good deal of shrewd discrimination is
desirable in purchasing either preferred or common stocks. It is best
to deal only in stocks listed on the New York Stock Exchange, or the
soundest local stocks.
As in good bonds, present earnings or recent happenings may often
be ignored for the general purpose of making investment in a good
preferred or common stock. Seasoned reliability over a period of time,
over lean and fat periods of business, the ability of a corporation to
earn and pay its preferred dividend, should be the only consideration
influencing a purchase.
If, in addition, the corporation has only a moderate funded debt and
the preferred issue is followed by a substantial common stock issue
upon which dividends have been paid or are in prospect, the preferred
issue is entitled to the rating “high grade,” and the investor should
buy it, if the yield is six per cent or over.
A very high or extraordinary yield on a preferred stock means either
(a) that it has escaped the notice of the rank and file, such cases
being rare but not impossible; or (b) its industry is speculative, as,
for example, mining or oil.
The case of common stocks is more risky, and these should be bought
on installments only if they represent a 20% portion of a diversified
list which includes bonds or good preferred stocks. The common stock of
some of our greatest corporations has been available to wise purchasers
and saving investors at ridiculously low prices. Frank Munsey is
reputed to have purchased U. S. Steel Common at about 33. Today it has
advanced 100 points beyond that. In fact there was a period when it was
considered worth little; it was contemptuously regarded as “water.” The
same is true of Woolworth Five and Ten Cent Store common stock--and
many others. Even a common stock which has heavy tangible assets behind
it, like U. S. Rubber, has been as low as 28 within a year of the time
that it reached 97. Common stocks of sound, well managed companies,
especially those whose trade-marks are familiar “household words,”
well advertised, are a very good purchase for the saving man. This is
being more and more appreciated, for stocks of famous companies are now
owned by hundreds of thousands of ordinary investors and savers where
once they were owned only by a few hundred people. _The ordinary
man today, the man with only $500 or less, can share in the success
and profits of prominent business institutions, at precisely the same
ratio as the large owners and wealthy men._ There are 14,500,000
stockholders in corporations today; and dividend and interest
disbursements in January, 1926, amounted to the huge total of 5½
billion dollars.
Good bankers and banks will gladly arrange for the purchase of listed
high grade preferred and common stocks on time payments; and the
regular arrival of payment dates will be an excellent prod to saving,
just as insurance is such a popular prod already. Installment purchase
of merchandise is on a very large scale today (about 10 billion
dollars in 1925), and the time payments for perishable goods could far
more wisely be used to buy investments, which do not depreciate, but
actually yield interest, and if carefully picked grow in quoted price.
SAVINGS AND INTEREST RATES
Two classes of savers make mistakes: (1) the saver who hoards his
savings in hiding places and gets no interest, or who does not get
savings bank interest on bank deposits; and (2) the savings bank saver
with $1,000 or more who does not invest his funds in bonds or high
class securities and thus secure 4½, 5, 5½, 6 or even 7% interest.
Interest rates are like wages; your money should earn the best wage
for you that is possible; but, unlike wages, there is a limit to what
you should expect to earn safely. Savings banks pay from 3 to 4½%
interest--4½% saving bank interest is not universally available with
safety, but is today by no means uncommon. Any savings bank operating
under a state charter is safe. Beware of “private” banks; many of them
are not sound.
Government bonds are better than savings bonds--they will yield from 4
to 5½%.
At 6% the high class mortgage bonds and preferred stocks come into
view, and are as a rule entirely safe. You should have no reason to
regret trying to get 6% for your money, if you are intelligent in your
choice.
Above 6% there are more chances. There are entirely sound purchases
of high class preferred stocks to be made that will yield as much as
8%; but the ordinary saver should not trust himself to pick them. They
require special knowledge and analysis, to avoid making serious errors.
At certain depression periods sound preferred stocks that are quite
remarkable bargains may be found, under competent guidance; listed
stocks of successful companies whose earning record is good and whose
yield at depression prices may be as high as 10% in rarer instances.
Such stocks are the only true financial “bonanzas,” and may be shared
by the medium sized investor and saver as well as the wealthy man.
Some of the foreign securities now offered are quite safe at 8 and even
8½% yield; and others absolutely safe at 7½%. Interest yields have had
to rise in recent years; and particularly for foreign loans.
The investor and saver with less than $5,000 capital should entirely
content himself with 4½ to 6%; the man with $10,000 with 6 to 7%, and
the man with $20,000 or more may hope to have one-fifth of his savings
earn 8% with safety. All this is based however on conservative, skilled
counsel, which a good banker or investment house will gladly provide at
no charge other than the usual moderate commission on sales.
Greed for high interest rates has lost more money to savers than has
ever been made by taking the risks involved.
The subject of how your savings will increase if you let them
accumulate at interest is particularly interesting. There are many
cases on record of people who have dropped out of sight, leaving a
few hundred dollars on deposit in a savings account, and who found
on their reappearance years later that the modest account, through
the compounding of its interest, has grown to one of substantial
proportions. The interest continued to be credited quarterly or
semi-annually, and as it was added it also drew interest. In other
words the interest was compounded at regular intervals. Money invested
at 6%, and the interest allowed to stand, will double in about 12 years.
The tables on the next two pages are printed to show how money
accumulates merely by being left at interest.
$100
Year 3% 4% 6%
1 $103.02 $104.04 $106.09
2 106.14 108.24 112.55
3 109.34 112.62 119.41
4 112.65 117.17 126.68
5 116.05 121.90 134.39
6 119.56 126.82 142.58
7 123.17 131.95 151.26
8 126.90 137.28 160.47
9 130.73 142.83 170.24
10 134.68 148.60 180.61
11 138.75 154.60 191.61
12 142.94 160.84 203.28
13 147.26 167.34 215.66
14 151.72 174.10 228.79
15 156.30 181.14 242.73
16 161.03 188.45 257.51
17 165.89 196.07 273.19
18 170.90 203.99 289.83
19 176.07 212.23 307.48
20 181.39 220.80 326.20
21 186.87 229.72 346.07
22 192.52 239.01 367.15
23 198.34 248.66 389.50
24 204.33 258.71 413.23
25 210.51 269.16 438.39
26 216.87 280.03 465.09
27 223.42 291.35 493.41
28 230.18 303.12 523.46
29 237.13 315.36 555.34
30 244.30 328.10 589.16
$500
Year 3% 4% 6%
1 $515.11 $520.20 $530.45
2 530.68 541.22 562.76
3 546.72 563.08 597.03
4 563.24 585.83 633.39
5 580.27 609.50 671.95
6 597.80 634.12 712.88
7 615.87 659.74 756.30
8 634.48 686.40 802.36
9 653.65 714.13 851.22
10 673.41 742.98 903.06
11 693.76 772.99 958.05
12 714.72 804.22 1,016.40
13 736.32 836.71 1,078.30
14 758.58 870.51 1,143.97
15 781.51 905.68 1,213.63
16 805.13 942.27 1,287.54
17 829.46 980.34 1,365.96
18 854.52 1,019.95 1,449.14
19 880.35 1,061.15 1,537.39
20 906.96 1,104.02 1,631.02
21 934.37 1,148.62 1,730.35
22 962.61 1,195.03 1,835.73
23 991.70 1,243.31 1,947.52
24 1,021.67 1,293.54 2,066.13
25 1,052.54 1,345.80 2,191.96
26 1,084.35 1,400.17 2,325.45
27 1,117.12 1,456.73 2,467.06
28 1,150.88 1,515.59 2,617.31
29 1,185.66 1,576.81 2,776.70
30 1,221.50 1,640.52 2,945.80
VARIOUS TYPES OF SAVINGS BANKS
Not all savings banks are conducted on the same basis. In New York and
a few other states the only institutions which are permitted by law to
call themselves “savings” banks are the _mutual_ savings banks.
There are more than six hundred of these, most of them being in the
eastern states. They operate under very strict laws. Only the safest
investments are legal for them.
Their funds must be put into such securities as United States bonds,
city and state bonds, high grade first mortgages--investments in which
there is practically no risk.
There are no stockholders--the depositors really own the bank. They
receive the profits in the form of interest on their deposits. The bank
is managed by trustees who receive no salaries. The profits are never
spectacularly great because the investments must be “gilt-edged,” and
such investments do not yield big returns. So the depositors in these
banks usually get from four to four and one-half percent on their money.
However, this money is probably in as safe a place as could be found
anywhere. There have been no failures of mutual savings banks in recent
years.
Other savings banks are not subject to the same legal requirements,
and the depositors are not the owners of the banks. Moreover, what you
regard as a “savings bank” may be a savings department of a regular
commercial bank. Many of these banks are as solid as the Rock of
Gibraltar. Some of them may not be. It depends on the integrity and
ability of the management.
It is best to make inquiries about a bank before you deposit in it.
Find out something about the men who control it. Read its reports and
financial statements. Write to the state bank examiner, and so long
as your money is in a bank, try to keep informed as to the bank’s
condition.
Some savings banks are extremely modern and alert to stimulate savings.
One such mutual institution flourishes in New York City, and has a
large list of members or owners among the working people of the city.
It has three principal methods of savings, called: (first) saving
shares, and (second) installment shares, and (third) income shares.
Saving Shares.--The plan of saving shares appeals to those who are
unwilling to be bound by any particular plan of saving, and prefer to
save as the impulse and the occasion arise. This plan, while similar to
the usual savings plan, has the advantage of what is sometimes called
the “Shareholder Agreement of Guaranty”--paying annual dividends of
4½%, credited quarterly or semi-annually and compounded if allowed to
remain on deposit. By this plan amounts ranging from $1.00 to $5,000
may be deposited with the bank.
Withdrawing of either the whole or any part of the amount on deposit,
together with all accrued dividends, may be made without notice during
usual circumstances, though the banking law specifies that sixty days
notice may be required in unusual cases.
Dividend earnings begin the first of the month following date of
deposit, and no time is lost awaiting a dividend period. During the
months of January and July deposits received before the tenth draw
interest from the first of the month.
Installment Shares.--To those who prefer a definite plan of saving and
are in a position to follow through systematic deposits of a definite
amount the banks offer a plan ranging upward from the payment of $1
monthly, applying on the $100 shares. On ten shares--$1,000--he would
make regular payments of $10 monthly until the completion of the
required payments, together with compounded interest, equaling the
maturity value of the share for which he has obligated himself to pay.
There are many variations of this plan, taking into consideration the
amount of shares the depositor wishes to buy and the period of time
in which he wishes to pay for them. This type of investment pays 6%
annually and is credited and compounded quarterly or semi-annually.
These installment savings pay a higher rate of interest, in most cases
amounting to 1½% more than the usual interest rate paid on savings
deposited in the ordinary way. On the plan of $1 payable monthly, as
applied to ten $100 shares, with compounded interest dividends, the
shares reach maturity in about seven years. However, by occasional
advances in payments the depositor can, of course, expedite maturity in
less than six years.
Should the shareholder desire to withdraw his savings before maturity
he may withdraw the entire amount, together with 90% of the accrued
earnings.
On the monthly purchase plan of ten shares, if withdrawal is made prior
to maturity the following interest dividends are paid: 4% per annum
semi-annually compounded, if withdrawn within three years; 5% per annum
semi-annually compounded, if withdrawn after three years and prior to
five years; 6% per annum simple interest, if withdrawn after five years
and prior to maturity.
By this plan of saving the systematic depositor who follows a definite
course of saving profits to a much greater degree than the person whose
deposits are spasmodic and who in that way secures only the usual
interest rates.
If the depositor is in arrears in his monthly payments on or before the
fifth day of each month, his deposit doesn’t begin to earn interest
until the first of the month following payment. It is advisable for
shareholders to make payment of their installment on the first of each
month thus obviating the hazards of delays in mail and also give the
bank clerks sufficient time to make entries on the books prior to the
fifth of the month.
Should the shareholder be confronted with the need to raise cash, he
may borrow from the bank on his shares at the regular interest rate
by putting up his shares as collateral security. He may borrow up to
ninety percent of the amount of the shares subscribed for.
On the installment plan of payment for shares, when $100, the maturity
value, is reached, the shares are automatically retired at full value,
and disposition may be made either by transfer to his savings share
account or exchanged for income shares, whichever the owner prefers.
The installment saving share plan is open to any person of legal age,
or to any group of persons of legal age who wish to combine their
savings and purchase shares by this plan. In the case of minors,
application may be made by any person of legal age, as trustee for the
minor, or as trustee for another person not making personal application.
To the investor who prefers the returns from his investment payable
in cash periodically, banks offer a class of Guaranteed Income
Share Certificates. These certificates are issued in $100 or larger
denominations and by the guaranty plan are guaranteed as to both
principal and dividends, at the rate of 5½% annually. Interest
dividends accrue from the date the certificates are issued and payments
in cash are due on January and July 1st. The income shares under
this class may be withdrawn as the holder desires, three years after
issuance, upon sixty days’ written notice (though some banks do not
insist upon this formality.) In times of unusual business conditions
other legal provisos regulating the withdrawal of deposits are
sometimes imposed.
Those of a “gambling” turn of mind will not find Income Shares
particularly appealing, as this type of investment appeals to the
conservative investor who, first of all, wants a safe and definite
income-producing investment. These shares are not given a listing on
stock exchanges, as this type of security is bought with a view to
holding for income, and not to be placed on the market for sale. This
explains why there is no dealing in this type of securities, such as
the listed stocks and bonds, and, consequently, no quick market for
their sale. To offset this seeming disadvantage, the investor would
do well to consider that they have a fixed value and are not subject
to fluctuations suffered by listed securities on the daily market.
What advantage is a quick sale, when the holder of the security has to
sell at the bidder’s price? While, it is true, the non-speculative,
conservative investor cannot expect to make unusually large gains
in his principal, on the other hand, the advantages offered by the
certainty that the principal and income will be collected in full at
maturity greatly offset the allurements of speculative investments.
SAVINGS THROUGH INSURANCE
Modern insurance is one of the cheapest things a dollar will buy, also
one of the most systematic methods of saving. It is a social device,
based on statistics, which distributes individual risk of death or
poverty to all those insured. Also, an insurance policy is a liquid
asset that has a substantial cash value after a few years. Is not
an expense, since it sells for cost-plus, the latter representing a
necessary expense, as regulated by law. Few businesses are nowadays so
closely regulated in the public interest as insurance, for insurance
companies are strictly controlled by detailed laws, and the person
interested in saving assumes no risk when he buys insurance from a
recognized company. All our nationally known companies are thoroughly
reliable, their rates fair, and what they sell fairly well standardized
and without “catches” or “jokers.”
Life insurance offers methods of saving for working people.
More insurance on this straight life plan is issued than on all other
plans put together, and more purposes than are often considered by
those outside insurance work. The young man dependent upon current
earnings takes a straight life insurance on which he pays a yearly
premium of a comparatively small sum, and on which no money is paid by
the company except at his death, when his wife or whomever he assigns
it to receives it all.
There are those who believe it is the cheapest and best form of
systematic saving there is. The insurance on this ordinary life
policy will be paid in a single sum, or if you so direct it will be
paid as an income, monthly, quarterly, half-yearly or yearly to your
heirs or “beneficiary.” Women often know little about the value of a
large sum of money, and they seldom know anything about investments.
So if a policy is paid in a single sum there is great danger that
the money will be lost through unwise investment or possibly through
extravagance. There are ghouls who prey upon women who have just
secured insurance money. But if the policy is paid in installments a
steady income is supplied which cannot be lost.
The income may run during a term of years or throughout the entire
lifetime of the beneficiary.
But that is only part of the protection of a straight life insurance
policy. At slight additional cost you may have a provision in the
policy under which, if you become totally and permanently disabled
before you reach the age of sixty, a life-long monthly income,
beginning immediately, and increasing fifty percent at the end of the
first five disability years, and an additional fifty percent at the end
of the second five disability years, will be paid you; and in the
future all deposit or premiums will be canceled. This gives protection
against poverty from any physical disaster.
The parents who are concerned as to the cost of a college education for
their boy or girl may take out a twenty-year endowment policy requiring
an annual payment of a proportionately larger sum, the whole of the
amount of the insurance being received at the end of twenty years.
An endowment policy is also an ideal policy for those desiring to save
systematically and regularly so they may enjoy the fruits of their
savings after they reach the age of sixty or sixty-five. For example,
if a man of forty were to take this policy and choose sixty for the age
for payment of the endowment sum and for the beginning of his life-long
income he would make his premium deposit annually or quarterly as he
might desire until he reached the sixty-year age. He would then receive
a cash payment of the endowment sum, and beginning one month later
would receive a monthly income as long as he lived. Such a policy
participates in the annual distribution of the company’s surplus. This
participation materially increases the endowment and insurance value if
thus applied.
These are but two examples of the many policies issued by the various
companies. All policies issued by recognized companies are excellent
investments. Those interested in saving would do well to talk over
the possibilities of insurance as a saving medium with an insurance
salesman, as they nowadays have well equipped services for advising
individuals concerning their particular saving situation.
An interesting method of using insurance as a saving plan for specific
children, is for a mother or father to insure himself or herself each
time a child is born, for a specific sum--$1000, $2000 or upward. By
the time the child is grown, the 20 year endowment policy will have run
out and a sum be ready for a college education.
SAVINGS THROUGH EMPLOYERS
Within the last 15 or 20 years, employers of labor have gone a long
distance in matters of employe well-being. One of the most notable
steps is the making possible, by systematic methods, savings which
the workers would never have accumulated if left to themselves. A
responsible employer who operates a carefully worked out savings plan,
is a wonderful aid to thrift and accumulation. It is simplicity itself
for an employer to set aside, with the consent of the employe, a
certain weekly portion of earnings which will be held as a savings
deposit. By this means the certainty of saving is greatly increased,
because the thing works automatically, and since the employe doesn’t
get the savings portion into his hands, there is no temptation to
change the plan or divert the savings to other things.
Some of the largest and most benevolent corporations not only save the
employe’s money, which is entrusted to them, and compound its interest,
but go so far as to offer to add to workmen’s savings as an inducement.
Thus, for instance, the Metropolitan Life Insurance Company deposits
to the benefit of each clerk, an amount equal to one-half the deposits
made in its “Staff Savings Fund” during the year.
The employe is permitted actually to earn what amounts to 50% interest
on his own savings plus ordinary interest. Few men of wealth, even if
owning remarkably productive businesses, could match such a return.
The United States Steel Corporation and many other large corporations
have a method whereby employes are encouraged to own stock in the
company. Over 60,000 of the 250,000 United States Steel Corporation
employes are now stockholders. The plan operated is to give the worker
the privilege of paying for stock on a monthly instalment basis to
be deducted from salary or wages. Employes receiving $1,250 or less
wages per year may subscribe to one share, and others of higher wage
are permitted to subscribe to larger numbers of shares. Like the
Metropolitan Insurance Company, the United States Steel Corporation is
benevolent enough to pay a premium to the saver. Those who keep for one
year the shares of stock purchased receive a special bonus of $3 per
share; those who keep them two years receive $4 per share; and so on up
to the fifth year, for which the bonus is $7 per share. This bonus is
in additional to all regular dividends.
Furthermore, employes in many companies have been privileged to
purchase stock at prices below quotations on the stock exchange.
Further security is given the employe who holds the stock longer than
five years by arranging a special compensation; if the subscriber dies,
is disabled, or is pensioned by the company, he is given his stock in
full and still enjoys its various benefits. Perhaps the most startling
instance of how an employe’s resolve to save brings him profit, is the
instance of 12 United States Steel Corporation employes who bought
stock in 1903 (both common and preferred)--at about the same time when
Mr. Munsey with all his wealth bought many thousands of steel shares.
These twelve workers, who paid a total of $46,000 for their steel
shares at that time, have now _more than doubled their money_,
through the rise in value of the stock. In other words, they not only
have their stock, but they have made a net speculative profit of
$55,000, _which is an average of about $4,800 profit per man, or
about $230 per year per man, exclusive of dividends_.
This sum represents interest on about $3,800; which is actually more
than these workers earned in a year. To put it another way, these steel
workers who purchased stock in their employer’s company, grew with the
company and profited just as the rich investors in the corporation did,
to the degree that they actually earned more money than the interest on
their total year’s salary amounted to, _each year for 21 years._
Let us take another example, that of the Proctor & Gamble Company,
makers of Ivory soap. This company, which has become famous for its
policy of guaranteeing employment to its workers, operates a plan
permitting employes to purchase shares equal to or slightly exceeding
wages or salary each year; the plan being to pay for it on 5% of wages
or salary. The company agrees to pay, during the first year, twice the
amount of the savings, or 10%, and for each additional share up to the
eleventh year, adds 1%, so that when the eleventh year arrives the
employe actually achieves 20% return on his investment for 11 years.
About 65% of the employes eligible for this plan have subscribed to it
and are saving in a systematic way.
Employers also frequently operate special fund savings plans for
vacation time or for Christmas time--sometimes also for home ownership.
The merit of this plan is also its systematic and automatic method of
operation. Workers invariably save more freely when given a chance to
operate in this manner through their employers.
Of course employers also operate pension systems and benefit systems
for employes who become ill or die, but that is outside the scope of
this book.
GROUP INSURANCE PLAN
Of late years interest has been shown in group insurance plans. This
was first brought to public notice through the government group
insurance plan for the war veterans. Insurance science became highly
developed in the course of working out Uncle Sam’s war veteran problems,
and now employes of companies are given opportunities for insurance
benefits on a new and unusual basis, which, because of the large number
of risks at one time, affords various advantages such as, for instance,
the elimination of medical examination.
Other than this, the payment for this insurance is by arrangement with
the employer, who not only aids in paying for it through his own funds,
but deducts systematically the cost of the insurance from the worker’s
wages. The reduction in costs, both of sale and collection, afforded
to the insurance company, permits it to offer greater benefit to the
insured.
Some insurance companies call their plan a “Salary Savings Insurance”
and the plan is obviously as much a savings plan as it is an insurance
plan, since, like all insurance, this group insurance has a cash value.
Various forms of this type of insurance are available. The employer,
under some forms, designates the number of months over which payment
is to be made, and the plan also provides for choice between payment
in one sum; payment partly in one sum, and balance in installments or
payment weekly over a period of a year or fifteen months. The following
table, that of the Prudential Insurance Company, gives some idea of the
payments and the intervals of payment for each thousand dollars of
group insurance and thus furnishes the basis of examining the workings
of this insurance plan in detail:
Amount of Amount of
Number of Each Monthly Number of Each Monthly
Months During Installment Months During Installment
Which Monthly Per $1000 Which Monthly Per $1000
Installments of Amount Installments of Amount
Would be Paid so Payable Would be Paid so Payable
6 $167.03 34 30.49
7 143.31 35 29.67
8 125.52 36 28.90
9 111.67 37 28.17
10 100.60 38 27.47
11 91.53 39 26.81
12 83.99 40 26.18
13 77.60 41 25.58
14 72.12 42 25.00
15 67.38 43 24.45
16 63.23 44 23.92
17 59.59 45 23.42
18 56.36 46 22.94
19 53.47 47 22.47
20 50.87 48 22.03
21 48.52 49 21.65
22 46.38 50 21.23
23 44.43 51 20.83
24 42.55 52 20.49
25 40.98 53 20.12
26 39.37 54 19.76
27 38.02 55 19.46
28 36.76 56 19.12
29 35.46 57 18.80
30 34.36 58 18.48
31 33.33 59 18.21
32 32.36 60 17.95
33 31.45
Many employers add of their own accord $500 to $1000 worth of insurance
and thus make a contribution to the total.
The Salary Savings Insurance idea is being widely offered by insurance
companies; and in fact some insurance companies have adopted it
for their own employes. For instance the United States Federal and
Guarantee Company has taken out a policy for its employes who have been
in the company’s service continuously for two years and receive an
annual salary of $780 or more. The cost to each eligible employe is 5
cents per month per $100 of insurance. The remainder of the premium is
paid by the company and the amounts obtainable by employes range from
$500 to $5000. No medical examination is required.
Many of these policies also carry with them certain specific clauses
which, in the event of illness on the part of an employe makes it
possible for the premiums to be waived by the company and a certain
percentage of the face of the policy paid to the employe during the
term of illness.
Also in the event of partial or total disability, a great many of the
newer group insurance policies carry benefits of one kind or another,
and pay to the employe, if totally disabled, a certain income for the
balance of his or her life. Or, if temporarily disabled, a percentage
of the policy is paid to the employe during the period of disability.
There are, too, certain policies, in group insurance, which carry
specific provisions for the benefit of a workman’s family in the event
of his death by accident. That is, a double indemnity is paid to the
dependents of the employe when his death occurs by accident.
All these methods of group insurance available to employes, serve
several important purposes in savings. Not only is the savings idea
kept consistently going, on a systematic and proportionate scale, but,
in addition, many other benefits are available, not possible in merely
saving in a savings bank. For instance, when the employe begins to save
by the method of insurance, he immediately creates an estate of the
face amount of the policy. He also, by making his first payment himself
or through his employer, provides immediately for his dependents in
the event his salary or wages should be discontinued through his own
disability to earn a salary.
THE INDIVIDUAL WORKER’S CAPITAL VALUE
It is a perfectly logical calculation to analyze an individual’s
capital value to himself, for an individual worker, with only his
services to sell, _is his own invested capital_.
A man earning $6,000 a year is getting an income which amounts to 6%
interest on $100,000. Therefore it is entirely fair to say that such a
man’s capital value to himself and his family is $100,000. If such a
man realized this, he would undoubtedly take himself more seriously;
and give his own finances the same careful analysis and attention that
a business man does who has $100,000 invested in a business.
The savings a man makes out of his salary--which should be 10% at
least--equals precisely what is the average business man’s hope for the
rate of profit which his business will show. A corporation capitalized
at $100,000 hopes and expects its statement at the end of a year to
show 10% net profit, after taxes, interest, depreciation, etc.
The _individual_ should have the same expectation for himself. He
should not only regard himself as having _failed_ in his business
(as the corporation does, if it shows no profit at the end of a year),
but he should also regard himself as having stood still if he has not
advanced his capital value, which is another way of having raised his
salary or income. It is a splendid stimulation to the saving idea to
thus visualize oneself personally, as though he were a corporation, for
incidentally such a procedure results in giving a man a certain pride in
his own financial analysis, about which by traditional negligence we
have been rather careless. From 30 to 65 years, at a salary average
of $250 a month, a man earns a grand total of $105,000. If one-tenth
of this, as per the standard calculation, is saved, the total is
$10,500, not counting interest. If put into a savings bank at only
4%, compounded, this saving would amount to over twice this sum or
about $23,000. This total saving in 35 years, until the average age of
slackening off in earning power, would produce an annual income at that
time, at 6%, of $1,380. This sum, as can be seen, is quite enough to
insure immunity from real hardships in old age.
Economists tell us that the value of the average life is $5,000.
The value of the very young baby is $180 and a man at the age of 80
actually represents a _liability_ of $1,400. At 20 the average
value is $8,000, but by 50, this value has decreased to $5,800. This is
on the authority of the Life Extension Institute and illustrates the
inexorable and illuminating possibilities of measuring human life on a
capital value scale.
The United States, at the present time, averages in wealth $3,000 per
person, which is actually less than the average value of life.
The annual income of the people of the country is about $545 per
person, or $2,180 per family of four. Nevertheless in 1924 the average
income of 86% of all workers was less than $2,000 per annum, and only
1% of the population earns as much as $8,000 per year. If you want to
figure your own capital value, simply figure out how much what you earn
represents as 6% interest in capital value.
You can attain a larger capital value in three ways: (1) by increasing
your income, (2) by saving and investing, (3) by an insurance plan.
If a man 20 years of age desires to be worth in capital $30,000 at age
65, he can take a $3,000 policy at a cost of $6.00 per month. At 22
years of age, he takes $3,000 more. At 24, $5,000 more; at 26 $5,000
more, and at 28, $5,000 more. This is a total insurance in force of
$21,000. At 65 years of age he then has the face value of his policies,
$21,000, plus dividends of $9,000 or a net total of $30,000. The total
cost of all this, if this plan is followed at the right ages, is less
than $50 a month.
Think of yourself in terms of capital value; capitalize your savings
and save systematically. Trust the rest to the law of compound interest
and the earning power of money judiciously invested, and your financial
future is systematically taken care of.
*** END OF THE PROJECT GUTENBERG EBOOK HOW TO SAVE MONEY ***
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