INSTITUTIONS FOR SAVING AND INVESTMENT 1. The nature of saving. 2. Economic limit of saving. 13.
Commercial bank deposits of an investment nature. 4. Investment banking and bond houses. 5. Savings banks in the United States.
6. Security for thrift. 7. Postal savings plan. 8. Advantages and limitations of postal savings. I 9. Collection of savings and educa tion in thrift. f 10. Building and loan associations. 11. The main features. 12. The continuous plan. 13. The distribution of profits. 14. Possible developments of savings institutions.
§ 1. The nature of saving. The motives actuating differ ent classes of lenders may, for our present purpose, be re duced to two: to postpone the expenditure of income, and to obtain a net income from wealth (or investment). Saving always is relative to a particular period and is for more or less distant ends. The child saves its pennies to go to the circus next week, the working girl saves her dimes for a new hat next spring, the earnest high-school pupil saves to go to college next year, and the provident man saves for his fam ily's future needs and for his own old age. But always, to constitute saving, there must be for the time a net result: the excess of income over consumptive outgo in that period. This is easily distinguishable from various forms of pseudo saving of which many persons who are really spending all their incomes are very proud. Such forms are: planning to buy a particular thing and then deciding not to do so, but buying something else; finding the price less than was expected, and thereupon using this so-called saving for an other purpose; spending less than some one else for a par ticular purpose, such as food, but offsetting this by larger outlay for another purpose, such as clothing; spending all 158 one's own income, but less than some one else with a larger income. We may define saving as the conversion, into expen diture for enjoyable use, of less than one's net income within a given income period.
Saving goes on in a natural economy both by accumulation of indirect agents and by elaboration so as to improve their It goes on to-day by the replacement of perish able by durative agents, as in replacing a wooden bridge by one of stone or concrete, and by producing wealth without consuming it, as in increasing the number of cattle on one's farm. But saving has come to be increasingly made in the form of money (or of monetary funds), and in this chapter we shall consider some of the ways in which this can now be done.
§ 2. Economic limit of saving. There is an economic limit to saving, as judged from the standpoint of each indi vidual? The ultimate purpose of every act of saving is the provision of future incomes, either as total sums to be used later, or as new (net) incomes to be received at successive periods. The economic limit of saving in each case is depend
ent upon the person's present needs in relation to present in come and conditions, as compared with the prospect of his future needs in relation to his future income and conditions. Each free economic subject must form a judgment and make his choice as best he can and in the light of experience. There is no absolute and infallible standard of judgment that can be applied by outsiders to each case. Yet there is oc casion to deplore the improvidence that is fostered and that prevails, especially among those receiving their incomes in the form of wage or salary. Considered with reference to the possible maximum of welfare of the individuals them selves, the apportionment of their incomes in time is fre 1 See Vol. I, chs. 9 and 10.
2 See Vol. I, pp. 285-290, for the analysis of saving from the indi vidual standpoint; and pp. 482-499 for its relation to general economic conditions.
quently woful. It is uneconomic for families of small income to save through buying less food than is needed to keep them in health; but it is ;likewise uneconomic to spend the income, when work is plentiful and wages good, for expensive foods having little nutriment, and then, for lack of savings, to go badly underfed when work is slack and wages are small. There is for each class of circumstances a golden mean of saving. The saving habit may develop to irrational excess and become miserliness but this happens rarely compared with the many cases where men in the period of their largest earnings spend up to the limit on a gay life and make no pro vision for any of the mischances of life—business reverses, loss of employment, accidents, temporary sickness, perma nent invalidity, or unprovided old age. Despite the develop ment of late of new agencies and opportunities for saving, there is need of doing more toward popular education in thrifts It has been estimated that the net annual investment fund of the United States is on the average about fifteen per cent of net incomes. The annual savings in the years just pre ceding 1914 were probably three billion dollars, and in 1919, an especially prosperous year, about ten billion dollars. Of course, as the amounts are expressed in terms of dollars, changes in the totals must be interpreted in connection with the changing price levels.