Chapter II: Part 2

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 The income shares under this class may be withdrawn as the holder desires, three years after issuance, upon sixty days’ written notice (though some banks do not insist upon this formality.)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.