Opening · Everybody's Guide to Money Matters

Everybody's Guide to Money Matters · Chapter 1Opening

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Everybody's Guide to Money Matters

With a description of the various invest- ments chiefly dealt in on the stock exchange, and the mode of dealing therein

also

Some account of the pitfalls prepared for the unwary, and suggestions to the cautious investor.

William Cotton, F.S.A.

Late treasurer of the county of Devon, author of "An Elizabethan Guild," "Gleanings from Records," "The Bank Manager," etc. Originator of the postal order system.

London 1898.

Preface

THE Author, emboldened by a Banking expe- rience of over forty years, offers this little work to the public in the hope that, elementary though it be, it may prove acceptable to many persons of both sexes.

The work has been prepared chiefly for the use of women, a vast proportion of whom are brought up in utter ignorance of money matters in the simplest form, though otherwise they may be highly accomplished.

The subject, it must be allowed, is not a fasci- nating one, but there are periods in the lives of most persons when some knowledge of money matters may be useful and even necessary.

W.c

Contents

PAGE CHAP. I. - What is Money? - What to do with it - How to open a Bank Account - How to draw Cheques . . . 1

CHAP. II. - How to Deposit Money at Interest - The Bank Pass Book - The Advantages of a Bank Account . 13

CHAP. III. - London Banks and Banking - Bill of Exchange - Deposits - Scotch and Irish Banks . . . . . . . 20

CHAP. IV. - Investments - What are Securities - Mortgages - The Funds - The National Debt - Stocks and Shares - Dividends, how Payable . . . . . . . . . . . . 26

CHAP. V. - British Government Funds - The Different Debts - Terminable Annuities - Loans Guaranteed by Govern- ment - Dividends, how to Receive them - Automatic Re- investment of Dividends . . . . . . . . . . . . 35

CHAP. VI. - Government Annuities, how to Purchase - When Payable - Tables - Insurance Office Annuities - Tables - Indian Government Stocks . . . . . . . . . . . 41

CHAP. VII. - Loans to Corporations, &c. - Colonial Govern- ment Securities - Inscribed Stocks and Bonds - List of Inscribed Stocks - Bonds and Coupons - Foreign Govern- ment Stocks - Caution in Investing - Railways - The Different Stocks and their Relative Values - The War- rants for Interest and Dividends - Indian Railway Stocks - American Railways - Foreign Railways - Banks - As an Investment - Colonial and Foreign Corporation Stocks - Canals and Docks - Gas - Electric Lighting, Telegraph and Telephone - Water Works - Breweries - Industrial Companies - Financial, Land and Investment Companies - Financial Trusts - Insurance Companies - Steamship Companies - Mines . . . . . . . . . . . . . . . 55

CHAP. VIII. - The Stock Exchange - Brokers and Jobbers - How Business is Done - "Contango" and "Backwarda- tion" - "Bulls" and "Bears" - "Boom" and "Slump" - Settlement - Risk in Keeping Convertible Bonds - Brokers - Traps and Snares - Good Companies and Bad - Advertising Swindles - Gold Mines - A Typical Case - Exploration Companies . . . . . . . . . . . . . 79

CHAP. IX. - Life Insurance - Its Advantages - Mutual and Joint Stock Companies - Choice of Office - Form of Pro- posal - Examination - Premiums, how Payable - Examples of Advantage - Various Modes of Insuring - Bonuses - How Applied - Endowment Insurance - Non-profitable Policies - Settlement Policies - Endowment of Children - Insurance of Joint Lives - Insurance on Longest of Two Lives - Surrenders - Fire Insurance - Farm Stock - Other Insurances . . . . . . . . . . . . . . . . . . 101

CHAP. X. - A Building Society, Mode of Doing Business - How to Obtain a Share, and Table of Payments - How to Withdraw, and Table - Borrowers - How to Build a House - Table of Payments - How Profits are made - The Weak Points of Societies Badly Conducted - What Leads to Collapse - Necessity for Choosing Directors of Standing and Character - Necessity for Efficient Audit of Ac- counts . . . . . . . . . . . . . . . . . . . . 122

CHAP. XI. - The Post Office Savings Bank - Mode of Depo- siting - Opening an Account - Convenience and Precau- tions - Limit in Amounts - Withdrawal - Payment to Representatives - Government Annuities, &c. - Advan- tages the Post Office Offers . . . . . . . . . 134

Appendix

Table of Interest on Investments . . . . . . . . . . . 142 Examples of Business Communications - Sending Money by Post . . . . . . . . . . . . . . . . 143 Requiring Money . . . . . . . . . . . . . . .

Chapter I. Easy Steps to Money Matters

MONEY is the medium by which we may acquire from others, who are willing to part with them, such things as we may desire. The price of an article is the value set upon it by the possessor, as represented by an expressed sum in money.

The price of some things are arbitrarily fixed by law or custom, such as stamps, professional fees, duties, &c.

The standard of value in this country is gold, and it is as against gold, represented by coins of different denominations, that the value of all commodities is estimated.

The authorised coins of the United Kingdom consist of the following pieces:-

GOLD. Five-sovereign piece, equal to Five pounds. Two-sovereign piece, equal to Two pounds. One-sovereign piece, equal to One pound. Half-sovereign piece, equal to Half-a-pound.

SILVER. A crown, or five-shilling piece, equal to one- fourth of a sovereign. Double-fiorin, or four-shilling piece, equal to one-fifth of a sovereign. Half-a-crown, or two shillings and sixpence, equal to one-eighth of a sovereign. Florin, or two-shilling piece, equal to one- tenth of a sovereign. Shilling piece, equal to one-twentieth of a sovereign. Sixpenny piece, one-half of a shilling. Threepenny piece, one-half of a sixpence.

BRONZE. A penny, equal to one-twelfth of a shilling. Halfpenny, equal to one-half of a penny. Farthing, one-fourth of a penny.

In writing or speaking of sums of money the expression takes the form of "pounds, shillings, and pence"; for example, Twenty-one pounds five shillings and nine pence. Sometimes the word "sterling" is added, meaning genuine or standard coin of the realm. In accounts the figures are placed in three parallel columns under the heading of £ s. d. "£" for pounds, "s." for shillings, and "d." for pence, from Libri, solidi, and denarii, the Latin equivalents for these values.

|| | | | || £ | s. | d. | || 21 | 5 | 9 | || | | |

Another form of money, if it may be so termed, is the Bank note. This is simply a promise to pay, on demand, the amount repre- sented on the note, in gold or some legal tender. The most common in use are £5 notes, but there are others of different denominations, such as £10, £20, £50, £100, &c. Some country banks still issue these notes, but they are by law restricted from issuing beyond a certain amount fixed by the Bank Act of 1844. No new bank can issue notes, and those which have the privi- lege are gradually relinquishing it, so that in course of time there will be only one bank entitled to issue notes, and that is the Bank of England.

The notes of country banks, other than the Bank of England, are not a legal tender; that is, it is not compulsory on anyone to accept them in payment of a debt.

The Bank of England is the oldest joint-stock bank in the country, and although, in its consti- tution, it does not differ materially from other joint-stock banks, yet, being the agent of the British Government in all money matters, and possessing other exclusive privileges, it is looked upon as one of the enduring institutions of the country.* (* See Joint-Stock Banks, p. 68.)

Amongst other privileges it enjoys is the authority to issue promissory notes to a certain extent, representing respectively sums of £5, £10, £20, £50, £100, £200, £500, and £1,000.

These Bank of England notes, as they are termed, are absolutely convertible, that is to say, the bank is legally bound to exchange them for gold at all times when demanded; and a cer- tain amount of gold has always, by law, to be kept in stock for the purpose. Moreover, the tender of Bank of England notes, the same as with gold, in payment of a debt, cannot, in this country, legally be refused. No one, however, can be compelled to give change; that is to say, if you owe a person £4 15s., you are bound in strict law to pay him that exact sum. You cannot offer him a five-pound note and insist upon his giving you 5s. change, though, as a matter of courtesy and convenience, payments are constantly accepted in that form.

It must be obvious that these Bank of Eng- land notes are a great convenience, and even a necessity to the public, as it would be quite impossible to carry on the enormous business of the country if such a cumbersome medium as gold coins was the only legal way of paying debt. Nevertheless, gold coin of proper weight is a legal tender to any amount. Silver is not a legal tender for sums over two pounds, nor bronze for sums over one shilling.

But even with bank-notes the requirements of business are not fully satisfied, as there is always the risk of their being lost or stolen. To avoid this risk, and to provide facilities for buying and selling, with the complications inci- dent thereto, and the passing of money from one hand to another, an intermediary agency is required, and that agency is to be found in the banking companies. In nearly every town, having a pretence to the name, in the United Kingdom, will be found a branch bank of some establishment of more or less repute, and those who are fortunate enough to possess money will do well to take advantage of such an agency for their money matters, having, of course, first ascertained that the standing of the company is such that they may do so with safety and confi- dence.

As a first step we give an example of what is occurring daily in hundreds of cases.

Miss Jane Smith is a lady who has been brought up without the slightest instruction in business matters, indeed has rather plumed her- self on the idea of being quite above such things. Suddenly she finds herself dependent upon others for guidance and advice. She would like to act for herself if she only knew how to do so safely, being of a somewhat suspicious temperament and mistrustful of advice from friends or acquaint- ances. Even the highly respectable lawyer, who has handed her a packet of documents and £500 in cash (a legacy from her uncle), with much sage counsel, she is not quite sure about, for she has imbibed the idea from her youth that lawyers are not always to be trusted.

The packet of documents in the tin box as they came to her is set aside in a safe place for the moment, but the bank-notes and gold are a matter of serious concern to her. She fears to carry them about her person lest she should lose them, or be robbed, and feels sure that if kept in the house they will attract any burglars that may be in the neighbourhood.

The best thing Miss Smith can do is to go to one of the neighbouring banks of repute - say the Blankshire Bank - and ask them to help her out of the difficulty.

She has an interview with the Manager or Cashier, tells her story, and is advised to leave the money at the bank and have an account opened in her name. This course she consents to adopt, and hands over the £500, requesting some acknowledgment that she has done so, in common terms, "something to show for it."

Many banks provide and require their cus- tomers to use "paying-in slips," that is, printed forms specifying the payments made to the bank under the head of cheques, notes, gold, and silver. A form is handed in with each payment, and the initials of the cashier placed against the amount noted on the counterfoil, which is re- tained by the customer.

In addition to this Miss Smith will be pre- sented with what is called a pass-book - a book passing between the bank and herself, now become a customer - in which she will find it stated in the briefest business manner, that the Blankshire Bank is Dr. (debtor) to, or owes, Miss Jane Smith £500. She will be told that portions of this money may be drawn out from time to time as she may need it, but this can only be done by cheques, or forms of request to the bank to pay out the amount desired.* These forms, provided by the bank, are printed, blank spaces being left to be filled up in writing, and they are made up in books of various sizes, each form bearing a penny stamp. The customer pays for the book according to the number of stamps it contains, but no more. Miss Smith buys a cheque-book, and, opening it, finds the following form in print:-

(* The practice with some people of writing cheques on plain paper is discountenanced by bankers, and is to be condemned.)

————————————————————————————- | No. 10901. | No. 10901. __________ 189 | | | | | _________189 | To the Blankshire Banking Company, | | | Blanktown. | | | | | _____________ | Pay to ____________________ or bearer | | | | | | the sum of __________________________ | | | | | £____________ | £___________ ______________ | | | | ————————————————————————————-

She then recollects that she has no money to go on with, and asks to have £10 of the £500 she has left in the bank. The cashier offers to fill up the blank spaces in her first cheque, making corresponding entries in the counterfoil, and having done so asks her to sign it at the foot.

It then appears as follows:-

The cheque is detached from the counterfoil at the dotted line, and is retained by the cashier, who hands over £10 to the lady together with the book containing the remaining cheques.

"Oh! I had quite forgotten - I owe Miss Tucker, the milliner, £23 10s. Will the cashier please to let me have £23 10s. to pay her with."

Miss Smith is told that there is no need of incurring the risk of carrying the money through the streets, as a cheque in favour of Miss Tucker will equally answer the purpose; and again he fills up the blank spaces in a second cheque, which appears thus:-

————————————————————————————- | No. 10902. | No. 10902. ! ! __March_I,_ 1898 | | | ! ! | | March I, 1898 | To the Blank!hir! Banking Company, | | | !Bla!ktown. | | | ! ! order J.S. | | _Miss_Tucker_ | Pay to ___Miss_Tucker______ or ====== | | | ! ! | | | the sum of _Twenty-three_pounds_10/-_ | | | ! ! | | £23_10/-_____ | £23_10/-____! ! __Jane_Smith__ | | | ! ! | ————————————————————————————-

"You see," says the cashier, "I have struck out the word 'bearer' and substituted the word 'order.' This will oblige Miss Tucker to sign her name on the back of the cheque (technically, to 'endorse it') before it can be paid. Your initials are required to confirm the alteration.* I have also drawn parallel lines across the cheque, which makes it what is termed 'a crossed cheque,' and a crossed cheque cannot be cashed direct, but must be paid into an account at a bank. So you see you will have the signature of Miss Tucker, proving that she has been paid her bill by means of this cheque; and it is obvious that by crossing the cheque, should it be lost and made an improper use of, there would be no difficulty in tracing through whose hands it passed."

(* Banks also issue cheques with the word "order" printed instead of "bearer.")

Miss Smith soon learns that all her trades- men's bills may be paid in the same way, with- out going to the bank to draw the money, and with the advantage that the cheque is not only a proof of payment, but that she has also a record of her accounts in the bank pass-book.

It may here be mentioned that should a banker cash a cheque with a forged endorsement, he is not responsible, and the loss falls on the drawer of the cheque.* The crossing of a cheque, how- ever, necessitating its being paid to a bank account, would facilitate the discovery of the culprit. An additional security is given to a crossed cheque if it bears the words "not nego- tiable" written underneath the crossing. This means that it cannot legally be used as a means of payment to a third party. In the event of such a cheque going wrong, the loss would fall upon a bank negotiating it for a customer. The bank could be called upon to make good the amount to the payee.

(* If, however, he pays a cheque with a forged signature he is responsible, as he is supposed to know the handwriting of his own customer.)

It is illegal to post-date a cheque, the reason being that bills of exchange, which are obliga- tions to pay money at a future date, bear a much higher stamp duty than cheques. It would, therefore, be a fraud upon the revenue to make cheques do duty for bills of exchange.

Chapter II. The Bank Account

THE manner in which Miss Smith had left her money on what is termed a current account at the Bank is convenient to herself and profitable to the Blankshire Bank, for they have the use of it free, paying nothing for that use in the way of interest.

She will have other money coming to her in the shape of rents, and the interest on money invested, as represented in those documents in the tin box - all which money can be handed over to the Bank in the same way that the £500 was. There is, however, no reason why she should leave so much lying idle without obtaining any interest upon it. She will reckon up how much she will require for, say, the next six months, for house expenses and personal use, and also how much, on the other hand, she will be paid in rents or interest, and will then find that there will be a sum of; at least, say, £300 over and above all she desires to spend.

If she is wise, she will draw out this sum by cheque from her current account and have it placed on a deposit account. In this case the bank will give her a deposit receipt or interest note, somewhat in this form:-

If the money is at any time wanted in a hurry, banks do not insist upon notice being given to withdraw, but deduct the days of notice from the time the interest note has run. For instance, if the money has been deposited for 184 days, the 14 days of notice will be deducted and interest allowed on 170 days only. These receipts or notes are not transferable, and the repayment of the principal or the interest must be applied for by the owner either personally or by letter.

Money may be deposited in a bank in two names and be repayable to both conjointly, by either separately, or to the survivor of the two. The bank will require a form to be signed by both parties, specifying the manner in which it is desired that the money may be deposited. By giving directions, too, the principal may be retained in the name of one person and the interest paid to another. Some banks adopt the plan of book deposits, that is, the amount paid in is entered in a pass-book, and the interest credited half yearly. This may go on accumu- lating, or it can be drawn out in one sum only, not as in the case of a current account by cheques of various amounts.

Having thus established relations between Miss Smith and her bankers, let us see at the end, say, of a month, the state of her pass-book, premising that in the meantime she has received and paid into the bank some moneys, and also signed and sent cheques to some of her trades- men:-

———————————————————————————————————————— | || | | THE BLANKSHIRE BANK. || BLANKTOWN, | | || | | Dr. to Miss Jane Smith. || of Blanktown. Cr. | | || | |———————————————————||———————————————————| |1897| | | £ |s.|d.||1897| | | £ |s.|d.| |June|24| To Cash . . |500| 0| 0||June|24| By Self . . | 10| 0| 0| | | | | | | || | | | | | | |July| 8| " Dividend Consols| 11| 4| 6|| " | "| " Tucker . . | 23|10| 0| | | | | | | || | | | | | | | " |23| " Rent from Cook | 24|10| 0|| " |26| " Deposit receipt |300| 0| 0| | | | | | | || | | | | | | | " |25| " G.W.R. dividend | 30| 0| 0||July| 1| " Figges . . | 8| 3| 4| | | | | | | || | | | | | | | | | | | | || " | 3| " Jones . . | 5|10| 0| | | | | | | || | | | | | | | | | | | | || " |24| " Self . . | 10| 0| 0| | | | | | | || | | | | | | | | | Total £565 14s. 6d.| | | || | | Total £357 3s. 4d. | | | | | | | | | | || | | | | | | ————————————————————————————————————————

By the entries in the pass-book it will be per- ceived that £565 14s. 6d. has been paid into the bank, as appears on the left-hand page, and that £357 3s. 4d. has been drawn out, as appears on the right-hand page. The balance or difference between the two, amounting to £208 11s. 2d., remains to the credit of Miss Smith.

In this comfortable state of things we will leave Miss Smith, who can now claim to consult her banker in matters of business.

He will be able to offer her facilities in various ways. He will hold for her, in safe custody, any deeds or securities; and whilst she is absent from home will take charge of her plate or valu- ables, free of all expense. If she is travelling about the country he will arrange so that her cheques on the Blankshire Bank may be cashed at any other bank in the kingdom. If she has occasion for it he will send money on her account to some other person's credit at any bank in the kingdom or the civilised world. If she desires to travel abroad, he will obtain a passport for her and provide her with "circular notes," which may be turned into money at any place she is likely to visit.

He will buy and sell stocks, shares, annuities, &c., for her, and collect dividends, interest, coupons, &c., payable anywhere at home or abroad. He will cheerfully advise her on all matters connected with money, and it will be quite the exception if she does not, in all things, find him a safe and prudent counsellor.

As a rule, no charge is made by a bank for keeping an account, provided the balance, that is, the amount of money they hold for the cus- tomer - technically the credit balance - is not persistently small. If it were always under £50 that would be considered small, but if only occa- sionally below that figure, and sometimes above £200 for any time, it would generally be exempt from charge. When a charge is made for keeping an account which is not remunerative or free from trouble, it does not amount to much, and is fairly earned.

If an advance of money is required for a tem- porary purpose, the bank will often lend the money by allowing the account to be overdrawn, that is, the balance in the pass-book will appear as due to the bank instead of from the bank for the sum required from time to time. This is sometimes convenient when the advance is only required for a short time as avoiding the necessity for disturbing any investment which otherwise would have to be sold. As a rule, however (though exceptions are made where the customer is absolutely to be depended upon), the bank would desire some security to be deposited. This may take the form of a sufficient portion in value of stocks or shares in which the customer has invested, or sometimes the personal guar- antee of one or two responsible persons is accepted. This is quite regular business, and the interest usually charged is fair and reason- able.

That was the first chapter. Sign in and the reader keeps your place on every device, and learns what you know: what you looked up comes back, what you knew makes room for something new.