Part 1

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