Long ago the wise Mr. Dooley bade Mr. Hennessy remember that "Whin a man gets more than 6% f'r his money it's a thousan' to wan he's payin' it himsilf." He meant, of course, that the larger interest was paid at the risk of depreciation or loss of the principal. Mr. Dooley would raise the sum to 8% now, perhaps to 10%, but the principal back of his first remark is unchanged. There is a limit at which investment becomes speculation, and speculation is not a legitimate use of savings. The banker and the sound business man will not advise you to try to get 100% interest on oil stock, or 40% on a rubber stock. They may prevent your making some sum of money; by and large they will surely prevent your losing more than that sum.
Before a discussion of saving by insurance must come one regarding the purpose of saving. This has been touched on already, but the subject will bear some repetition and fuller discussion. Savings may be for an emergency fund, as provision for a special purpose like the college education of a child or a longed-for trip to Thibet, or they may be to provide an income for the non-earnjng period of later years. Saving for emergencies has already been dealt with and its importance urged. Such a fund is best placed in a savings bank or in some security on which cash can be obtained readily when the emergency arises. If the fund is not used, it is of course eventually added to the savings for other purposes. If it must be drawn on, the money taken should be considered a loan and returned to the fund when payment is possible. It should not be hard for the individual or the family to decide what is a fair amount for such an emergency fund. If the possibility of drawing on savings in an emergency is not kept in mind, it is a discouragement when the savings that one had thought of as provision for other purposes have to be used to pay doctors and nurses. "What is the use of saving? The money goes just like other money." This is only a matter of psychology, but so are many of the important things in life.
Savings for a special purpose are easily administered. The sum once decided on, and the probable date of use calculated, there only remains the choice of a safe investment that can be turned into cash at the proper time. Even when the amount of the fund is indefinite, as may be when one decides to make a given fund "as large as possible," the conditions are the same.
Saving to provide an income for the non-earning years brings up many questions. How long is the period of earning? If it may be to 65, do you nevertheless wish to stop or lessen work at 60 or 55 ? Will the earning power as expressed in the income increase up to that point? If not, up to what point? Should you plan to save a larger proportion of your income at any given period? Is part of the provision for your old age to be in your children? If so, how much? How many must the income from savings provide for? Have you any obligation to provide an income for wife, children, an old mother, or any one, in case of your death before the earning period is over? Do you wish to live on the same scale as at present? This seems a bewildering list, yet the answers to most of the questions are easy, and none are very hard. The individual or family after answering them can calculate how much must be saved each year so that at the end of the time the income will be what is needed.
Life insurance offers methods of saving for more purposes than are often considered by those outside insurance work. The young married man dependent on 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 except at his death, when his wife, or any one to whom he assigns it, receives it all. The parents who are concerned as to college for their boy or girl, may take out for either a twenty-year endowment insurance policy, requiring an annual payment of a proportionately larger sum, but the whole amount of the insurance being received at the end of the twenty years. The man (or woman) who is not in a family partnership and whose obligation is only to himself in his old age, takes out an income bond, on which he makes annual payments until he is fifty, or fifty-five, or sixty or what not. At the end of the time agreed in the contract of the bond, he receives an annuity, a fixed yearly income, paid in monthly instalments to the end of his life. These are three of many forms. Any life insurance company will tell of many others. Insurance agents are noted for persuasiveness, and it is well to check their recommendations by the advice of the banker or the experienced friend, especially as all of them do not always remember differences in purpose. The details of life insurance are voluminous - the amount one may borrow, and the conditions of a loan, the "redemption value," or the amount one receives if one wishes to give up the arrangement, the "disability clause" that for some added payment offers some income in case of accident or prolonged illness. Every one should know something of the possibilities of insurance that means income, as well as of insurance against damage and loss. It is to be noted that the old discrimination against women by charging higher rates to them is rapidly disappearing. No woman need insure in a company that still makes such charges.
The "income bond" deserves, however, especial recommendation to the self-supporting woman who does not see any possibility of saving enough to provide an income for her years of retirement from active paid work. If she does accumulate enough, it is usually at the expense of her present comfort and on a basis that means only meager living. If she puts the same amount into an income bond she has a safe and steady income which no one can cheat her out of or lure away from her. The old lady who receives a hundred dollars on the first day of every month and to whom the payment is guaranteed up to the very last month of her life is independent and self-respecting and commands respect in others as far as financial standing goes. And thousands of women who could easily from their present earnings provide themselves with that income at sixty will find themselves instead at that age with no more than a few thousands which even if invested to the best possible advantage, will bring in only four or five hundred dollars a year. In taking an income bond one of course gives up the money paid in (unless one withdraws the arrangement or dies before the annuity is paid) and cannot leave it to others when death puts an end to one's use of it. It is therefore not a right method for those who have an obligation to others that should be met in the form of a legacy.
Insurance companies are now generally as closely supervised by the state as are the banks. They are safe, as far as human institutions can be safe. It is unwise to insure in a company not under supervision. The contract with an insurance company is called a policy, and each payment is a premium. A beneficiary is the person to whom the money is to be paid in case of the death of the insured person.
Pensions paid by governments or institutions are a form of provision for the non-earning years that the individual may find open to him. They need no consideration here.
Saving through payments to fraternal societies or orders is also not dealt with here, as these are of too many types. Some are excellent, yet there have been serious losses through others. The expert should be consulted, unless sharing in them is primarily a matter of loyalty. Even when it is, there may be a choice between putting all or only part of one's savings into the one form of investment.
Family savings are best invested divided between husband and wife, or brother and sister. Joint investments have the same disadvantages as joint bank accounts. On the death of one person concerned they are treated as the sole property of the deceased, and the inheritance tax must be paid on the full amount.
One word as to the making of wills. Every person who has any property at all should make a will, under the direction of a lawyer. The settlement of an estate of even a few hundred dollars is much easier if there is a will, and the property goes to the persons or institutions that the owner of it wishes to have it. It is unwise to appoint a single individual as executor (the person who sees that the will is carried into effect), although a Trust Company may safely be so appointed. The individual dies, perhaps before his work as executor is done; the Trust Company does not die.
The economist who cries "Save!" to every one is right, where the income allows more than the bare necessities, and is still a moderate one. The person living on income from investments needs to save an emergency fund, at least in the earlier years, to be drawn on in years when the investments fail to bring in the regular income. Every one needs to save an emergency fund for any imperative call on the income that demands a considerable sum but is not provided for in the budget. Those who live on current earnings, whether these are wages, salaries, profits or fees, need to make some provision for an income when the annual earned income dwindles or ceases. But next to the exhortation "Save!" comes "Invest your savings wisely!" If the second precept is not kept in mind the first may in the end prove useless.