Everybody's Guide to Money Matters
by
William Cotton, F.S.A.
Part 2 out of 3
the guarantee should be ascertained and its value
taken into consideration. Preference stocks
and shares come next in rank as an invest-
ment. The interest on these is fixed at a cer-
tain rate per cent., and, after satisfying the
preceding stocks, must be paid in full; or if
there is not sufficient profit in the year to pay
in full, then as much as means will allow.
But any deficiency cannot be carried on to the
next year, and so it is lost to the holders.
There are several degrees of Preference
stock, some taking precedence of others as to
interest; a first preference may be as good as
debenture stock, whilst the last preference of
the same railway company may be no better
than ordinary stock.
Preference stock may be purchased in any
amount in the market, and the interest war-
rants are sent half-yearly to the registered
holders.
Ordinary stocks depend on the profits for the
year for the interest they yield, and thus afford
a wide field for speculation. The stocks of the
great English lines may be relied upon as a
good investment, the profits being steady and
sufficient to assure a fair amount of interest
after satisfying the prior claims of debenture
and preference stocks.
Ordinary stock may also be purchased in any
amount, and the warrants for interest are sent
half-yearly to registered holders of stock.
In all cases railway warrants of every kind
will, upon written request to the secretary of the
railway company, be forwarded periodically to
the bankers of the holder of the stock for the
credit of his or her account.
INDIAN RAILWAY STOCKS.
These are a favourite investment with the
British public. They consist of Debenture,
Guaranteed, and Ordinary stocks. The Deben-
ture stocks are similar to those of British rail-
ways, and are a first charge on the undertaking.
The Guaranteed stocks are those upon which
there is an undertaking by the Secretary of
State for India that the interest shall not be
less at any time than they are stated to bear;
any deficiency in the earnings being made up
by the Government. Should the earnings be
more than sufficient to pay the stated interest,
the surplus is divided between the Government
and the railway company. Annuities may be
purchased in some of these railways, that is to
say, by paying, we will assume, £30 as the
market price, an annuity of £1 a year will be
granted for a certain number of years. In
dealing with these it is necessary to ascertain
when the annuity ceases, or the investor, hav-
ing sunk the capital sum, may cease to receive
any income therefrom when least expected.
Warrants for interest on these stocks are
periodically sent to registered holders.
AMERICAN RAILWAYS.
The stocks and shares of Canadian and
American railways offer a more remunerative
return than English railways, as they may be
purchased at much lower prices. They are
subject, however, to speculative influences of
many sorts, and can hardly be recommended
for safe permanent investment.
No venture should certainly be made in these
stocks without full knowledge of the position
and prospects of the railway company and the
contingencies to which it may be subject. Any
banker would obtain for a customer all the in-
formation that could be afforded in regard to
these stocks, and indicate their market value as
an investment, apart from the fictitious value
induced by speculators, and the manoeuvres of
syndicates and wire-pullers.
FOREIGN RAILWAYS.
The capital of foreign railways consists of
obligations, stocks, and shares. The obligations
are in the form of bonds, being a first charge on
the railway. The bonds vary in amount, but
chiefly represent £100 and £20, and they bear a
certain rate of interest. Some of the Conti-
nental railways may offer a fair investment in
this way, but great care is required in the
selection.
The stocks and shares of some of the South
American railways command a high premium,
but of the whole number quoted in the official
list the large majority show a heavy decline on
the original value, many indeed being valueless.
These stocks are highly speculative and subject
to be affected by political convulsions and other
contingencies, which make them undesirable as
an investment.
BANKS.
A joint-stock bank is composed of a number
of proprietors who hold the shares which make
up the capital of the bank, and to the nominal
amount of these shares their liability is limited.
The whole of this amount, however, is not
paid up, but only sufficient for the working re-
quirements of the bank, the remainder being
held in reserve for contingencies. Let us take,
for instance, the London and Westminster Bank,
which has the largest capital of all the joint-
stock banks.
The capital amounts to £14,000,000, made up
of 140,000 shares of £100 each. Only £20 of
this £100 is paid up, leaving a liability of £80
on every share.
A joint-stock bank is governed by a board of
directors, elected by the shareholders; and
managers and other officers are appointed by
the board to conduct the business. Many of
these banks, besides having a head establish-
ment in London, have branches all over the
country. Every joint-stock bank is compelled
by law to publish its accounts so as to show its
position, and these accounts are presented to a
yearly or half-yearly meeting of the shareholders
for approval.
The British Colonies have a good many joint-
stock banks, with agencies in London. By a
Permissive Act passed in 1825 the shareholders
in most of these are liable for double the amount
of their shares.
The profits of banking have been, in times
past, very large, and the original shareholders
of the older banks have reaped the advantage
thereof, but bank shares of good repute are not
now to be obtained except at a high premium.
The dividends are sent half-yearly to the ad-
dress of the shareholders, and they are not liable
to income-tax, as the bank pays this. Any one
entitled to exemption from income-tax can claim
from the surveyor of taxes the amount the bank
has paid in respect of the dividend, on a certifi-
cate from the bank to that effect.*
* See Note, p.39.
Individuals of a timorous disposition, if they
value their peace of mind, would do well to
avoid investing their money in bank shares.
There are banks whose position and stability
are above suspicion, and which return handsome
dividends to their shareholders; but there have
been cases of banks, enjoying unlimited confi-
dence, which have unexpectedly collapsed and
overwhelmed their shareholders in ruin. The
nervous person, therefore, who could not read of
the collapse of a bank without a fearful appre-
hension that his own would be the next to go,
had better be content with a smaller rate of in-
terest and a tranquil mind therewith. The more
sanguine investor who desires a good rate of
interest for his money, and has a contempt for
contingencies, should at least have some know-
ledge of accounts, and be able to form some
estimate of the position of a bank from the
annual balance-sheet, and should carefully
ascertain what immediate contingent _liability
he would be_ subject to in the event of collapse.
COLONIAL AND FOREIGN CORPORATION STOCKS.
These represent money borrowed by munici-
palities and trusts in Colonial and foreign towns,
and the security offered consists of rates and
revenues from the various undertakings, such as
harbours, gas, and water-works, city improve-
ments, &c., in which the loans are invested.
The loans are mostly represented by bonds, to
which coupons are attached for interest, and are
repayable at a certain specified date. Although
they do not command the high credit of British
Corporation loans, yet some of the Colonial
towns are in fair repute as an investment, and
the rate of interest is high enough to tempt a
large amount of money from this country.
Towns of some size in our Colonies, and
thoroughly settled, may be relied upon to carry
out their obligations, but mushroom cities and
foreign places liable to political fluctuations
should be looked upon with suspicion.
CANALS AND DOCKS.
These offer but a limited area for investment.
They were formerly very popular with the
British investor, but rival interests and labour
troubles have affected the confidence in which
they were held, and the ordinary stocks are
mostly at a considerable discount.
Gas and electric lighting companies, trams
and omnibus companies, telegraphs, telephones,
water-works, &c., must all be judged by the
localities which they serve and the amount of
business they are likely to command. As per-
manent investments it should be considered
whether they are likely to suffer by supersession
or opposition, and if they are managed by a
trustworthy competent board of directors.
BREWERIES.
Among the numerous commercial undertak-
ings offering for investment, brewery companies
form a class of themselves, and, with few excep-
tions, the English companies appear to have
done well, and the shares of the best of them
stand at a high premium. Properly managed
and dealing in an article of universal consump-
tion, brewery companies ought to be a trust-
worthy investment: but they are liable to much
fluctuation. The shares of one of the leading
concerns, which now stand at about 150 for the
£100 share, were only four years ago as low as
28, and at the same time only half the interest
was paid on the preference shares. American
brewery companies are liable to be manipulated
by cliques and syndicates, and should be avoided
as an investment.
COMMERCIAL AND INDUSTRIAL COMPANIES.
Speaking generally, taking shares in this
class of property is like purchasing tickets in a
lottery in which the prizes are not numerous.
It may fairly be said that at least three-quarters
of these companies are formed for the purpose
of relieving private owners of concerns which
were on the verge of failure through some cause
or another.
It would be palpably foolish for a man or a
firm doing a prosperous business to give it up
into other hands, unless such a price could be
obtained for it as would be almost ruinous to
the purchaser. True it is that in the remaining
quarter may be found perfectly legitimate un-
dertakings formed into companies, owing to the
death of the owner, deficient capital, or some
other valid reason. Some of these flourish and
take root, others are prosperous for a time and
gradually die out. After a time it will be found
that few remain which could be recommended
for a permanent investment; and much informa-
tion has to be sought and acquired before the
venture should be made.
There are, of course, many persons who have
the means of acquiring reliable information
about a company, and are able to form a sound
opinion as to its prospects, but the information
is derived from personal knowledge and not
from kind friends or from public prints, which
are not always to be trusted. These persons
purchase shares either for investment or as a
speculation -- in this latter case with a know-
ledge or, at all events, a safe presumption that
they will go to a premium, that is, rise in value
to considerably more than their nominal amount,
either from their own merits, or from an active
demand for them on the part of the public, or by
artificial stimulation. The holders know pretty
well when the highest price has been reached,
and then sell out with great advantage to them-
selves. It is often at that moment that the _tyro_
is recommended to buy, or is seized with a desire
to have a share in so good a concern, and parts
with his money. The knowing speculator has
taken his profit, and sees with grim satisfaction
the shares gradually declining in value, until
they arrive at the position of more than one-
third of existing companies which are now
quoted at a discount.
FINANCIAL LAND AND INVESTMENT COMPANIES.
These companies are mostly formed for the
purpose of employing their capital in the
Colonies, where money commands a higher
rate of interest, and can be more profitably
employed than in this country.
Some of the older concerns have been suc-
cessful, but of the whole number of existing
companies at least one-half, judging from the
price of their shares, have been failures. The
difficulty with these concerns would seem to
be the want of direct control, their business
having chiefly to be conducted by agents who
often consider their own interests before their
employers'. Some of these companies appear
to have advanced large sums of money on the
security of land which they can neither sell nor
let, and which has been abandoned by the
borrower.
FINANCIAL TRUSTS.
The shares in these trusts were at one time
much sought after as an investment. The
ostensible business of a trust company is to
purchase shares and stocks of other concerns at
favourable opportunities, and to invest widely
in foreign and other companies offering good
dividends, so as to average a high rate of inter-
est. They are divided into debenture stock,
preferred stock, and deferred stock. The latter
has its share of the profits after the others have
been satisfied, and at present three-fourths of
the companies now doing business have their
deferred shares at a discount. The financial
collapse in Argentine, some years since, very
seriously affected most of these concerns, and it
is doubtful, in view of the risky nature of the
business, whether they will ever come into
favour again.
INSURANCE COMPANIES.
Under the head of Life, Fire, and Marine
Insurance, these companies, as a class, have
been more steadily successful than others. Most
of these concerns are making large profits, and
their shares command a high premium; so high,
indeed, that an investment at current prices
yields but a moderate rate of interest. The
risks undertaken by insurance offices are enor-
mous in extent, but the law of average by which
they are conducted is so accurate that, taken in
the long run, and with sufficient business main-
tained, misfortune is almost impossible. In all
cases, however, so little is called up of the
nominal amount of their shares, that a very
large liability attaches to them.
STEAMSHIP COMPANIES.
Judging from the prices of the shares in these
companies, they have not been very successful
as a whole, and it would appear that a Govern-
ment subsidy for mail or other service is almost
necessary to make them profitable.
MINES.
Speculation in shares of mining companies
has of late years been indulged in to an enor-
mous extent, and large fortunes have been made
and much money lost. As a rule the prizes
have been secured by those behind the scenes,
and the public have not had the opportunity
of participating until the price of shares had
reached a figure which was almost prohibitory.
As an investment mining shares, even of the
best, are not to be recommended. Mines are
apt to get worked out when the source of income
fails and there is an end to the concern. More-
over, hundreds of companies are promoted which
have a specious appearance on the prospectus,
and are puffed in every imaginable way, when
they have not an ounce of ore or a yard of
ground to call their own. Of course, there are
genuine undertakings which answer well and
yield large profits, but it is extremely difficult to
discriminate between the good and the bad, and
the best after all are but a speculation.
CHAPTER VIII.
THE STOCK EXCHANGE.
THE Stock Exchange is a market for the
sale and purchase of all kinds of securities.
The buildings, wherein business is transacted,
occupy a triangular plot of ground near the
Bank of England, and comprise the Hall where
the various markets are held, and other rooms
and offices for the use of the numerous officials.
There are 2,500 members, and the management
is vested in a Committee selected from their
number. Admission to membership is open to
any person not engaged in another business,
and who is properly proposed and seconded;
but very strict regulations and guarantees are
enforced before entry, so as to exclude any one
whose circumstances and character will not bear
the strictest investigation. The hours of busi-
ness are eleven to four o'clock on all days except
Saturday, when they are until two o'clock. The
members of the house are divided into Jobbers
and Brokers, the former being dealers in stocks
and shares. It is contrary to practice for
brokers to deal with brokers, and all trans-
actions are between brokers and jobbers.
What are known as "markets" are groups of
jobbers distributed about the house, each group
having its own particular dealings, one in
Government Stocks, another in English rail-
ways, a third in Foreign securities, and so on.
A broker having received an order from a
customer to sell £1,000 Great Eastern Railway
Stock, would go to the English railway group
and inquire of a jobber the price or quotation
for Great Easterns, without disclosing whether
he wants to buy or to sell. The jobber replies,
"115 1/4 to 115 1/2"; whereupon the broker says, "I
sell at 115 1/4," when the bargain is completed,
without any memorandum or written contract,
the verbal communication being alone in use,
and the jobber is bound by it. It will be
observed that the lower price, 115 1/4, is accepted
by the broker on behalf of his customer, as a sale
is always effected at the lowest quotation, and a
purchase at the highest. Another broker pre-
sently goes to the jobber and asks the same
question receiving the same reply, 115 1/4 to 115 1/2
the broker says, "I buy of you at 115 1/2," being
the highest quotation. The difference of 5s.
between the sale and the purchase is the Job-
ber's profit. The broker charges his customer
his own commission or brokerage on the trans-
action, which ranges from 2s. 6d. per cent. on
the Government and Colonial Stocks up to
10s. per cent. on railway stocks. This is the
elementary stage of the business of the Stock
Exchange, but the variety of the securities dealt
in, under constantly changing circumstances,
the number of transactions, and the amount
of money changing hands, involve intricate
accounts and arrangements, which need not be
particularised here. Accounts are settled fort-
nightly, the precise dates being fixed some time
before by the Committee of the house.
Many speculators, however, especially those
who have bought stocks and shares with the
expectation that they will speedily rise in price,
do not find it convenient to pay the purchase-
money on the appointed settling day; so pay-
ment may, by arrangement, be carried over to
the next settling day. For the accommodation
a certain charge, which is called "contango,"
is made, the amount varying with the value of
money and the quality of the stock. "Back-
wardation," on the other hand, is a commission
paid in order to postpone the delivery of stocks
or shares which a speculator contracts to sell,
but which he never possessed. He is a specu-
lator for the fall, hoping by the delay to be able
to purchase the same stocks and shares at a less
price than he bargained to sell them for, and so
make a profit out of the transaction. Specu-
lations for a rise are known on the Stock
Exchange as "Bulls," and their object is by
every manner of means to get the prices of the
stocks they are dealing in pushed up as much
as possible. Speculators for a fall are called
"Bears," and they are equally anxious to send
prices _down_. So sensitive is the stock market
that prices are easily affected; the rumoured
prospect of an important dividend from a rail-
way company will at once probably influence
the price of its shares, whilst a report of a
disastrous accident will have the contrary effect.
A "boom" in the money market is a cheerful
desire on the part of the speculative public to
be purchasers at advancing prices, and this
betokens good business for the brokers and
jobbers. A "boom" in any particular stock is
a buoyancy in prices, caused by some favourable
rumour, whether founded or unfounded, more
often the latter, and set agoing in the interest of
persons who desire to get rid of surplus stock.
A "boom" in railway shares is often brought
about by increased traffic receipts; a "boom"
in mining shares is caused by one or two com-
panies having produced more gold this month
than last; and a "boom" in foreign stocks
is due to the settlement of some political or
other difficulty, &c., &c. A "slump" is just the
reverse, being an unaccountable depression
which sometimes fastens upon the specula-
tive world, and betrays distrust in everything.
Unless this feeling is checked in time it
degenerates into "panic," when prices fall to
a ruinously low figure.
Each fortnightly settlement includes three
days -- the first being continuation or "con
tango" day, when all transactions of a specula-
tive description are arranged to be carried over
to the next settlement day. The second is the
ticket day, when the names of purchasers and
sellers are handed over. The third is pay-day
when all amounts or balances due for stocks
bought or sold are paid or received. The great
bulk of business being purely speculative, the
first day is the busiest; after noon on that day
all new transactions entered into are for settle-
ment at the next account day, unless otherwise
specially arranged.
Any sums of money may be invested in, or
any particular amount of stock purchased of, the
Government Funds, through a broker or banker,
and there is practically no limit to the quantity
that may be held. In the books of the Bank of
England an account is opened, and the name,
address, and description of the investor care-
fully registered. A memorandum is given of the
transaction, but it is of value only as such, not
being in the nature of a certificate or receipt,
and it is not required to be given up or produced
in the event of a sale or transfer of the stock or
any portion of it. Accounts may be opened in
one, two, three, or four names, but not more, and
four different accounts may be open at the same
time in the same name or names, but they must
be distinguished as accounts A, B, C, and D.
In order to sell stock the holder may attend
at the Bank of England himself accompanied
by his broker, and then and there have the
transfer made and the money paid. But this
would be unusual and held to imply mistrust,
without perhaps occasion for it. The safest plan
is for the holder to instruct his bankers to carry
out the transaction, and give them a Power of
Attorney to enable them to do so. A special
form of power is provided by the Bank of Eng-
land, the cost of which is 11s. 6d. The Inscribed
or Registered Stocks of most of the Colonial
Governments are dealt with in the same way, as
well as Indian stocks and the stocks of many of
our larger towns. The account of an investor
may be added to or diminished at any time with-
out difficulty or delay.
The stocks and shares of railway and other
companies may be purchased through a broker
or banker, and the holder passes them over to
a buyer by a formal deed of transfer. The
purchaser's name, address, and description are
carefully registered in the books of the company,
and he has then accepted all the responsibilities
that may attach to the shares. For instance, the
shares he has bought may be only partly paid
up. The shares in railway companies are
usually paid up in full, but it may so happen
in an issue of new shares that they are paid up
by periodical instalments; in which case what
has already been paid is known as "scrip," and
retains that name until developed into fully-paid
shares. A company formed of £20 shares may
have called up only £5 on each, and with no
intention of demanding more, yet the holder is
liable for £15 on every share he holds, and
before he invests his money he should be careful
to ascertain the full extent of his liability.
Some little time after the transfer of the stock or
shares has been completed, a certificate will be
issued by the company, giving full particulars
of the holding, and this certificate must be care-
fully preserved, as it will be required to be given
up before all or any portion of the property can
be sold. The Colonial, foreign, and other bonds
payable to the bearer, which have been pre-
viously described, are purchasable through a
broker or banker, and handed over without any
transfer or other formality. Bonds of this
description should be left in the safe custody
of a banker, who would cut off and collect the
interest coupons attached, as they became due.
As an example of the hazard incurred by
keeping securities of this kind in one's own
house, the writer remembers a case where a
gentleman was examining in a room of his
house, by the light of a candle, some bonds
which he afterwards locked up in an iron safe.
It was dark outside and the blind was drawn up,
so that any one from the garden could see all
that was going on in the room. Next morning
the empty safe was found in the grounds and
the contents had been carried off. All the par-
ticulars of the bonds were at once telegraphed to
the Stock Exchange, the London banks, and the
Police authorities. Some months afterwards the
bonds turned up in the hands of a banker in
London, who had received them from an agent
abroad. An action was brought by the original
owner for their recovery, but it was of no avail,
as the securities had come into the hands of the
banker in the course of regular business, and so
the loser could get no redress and, moreover,
had to pay a large amount in costs.
The broker, who is a member of the Stock
Exchange, from the precautions taken on his
admission, should be a responsible person, whom
it would be safe to entrust with any business
which might be put into his hands. His deal-
ings, however, are chiefly on behalf of the
bankers and outside brokers, acting for them-
selves and the public. There are numerous
outside brokers (that is, brokers who are not
members of the Stock Exchange) in London
and all over the country. In every profession
there are some doubtful members, and stock-
broking has its fair share, but with ordinary
vigilance on the part of their customers, well-
established brokers will carry out their com-
missions faithfully and reasonably. As to the
advice, however, a broker may have to offer in
the way of investments, it must be remembered
that he is no more than mortal, and would at times
be prone to submit such securities as he him-
self, on behalf of a client, would most desire to
dispose of. In this way, too, the country broker
is liable to be pressed by his London agent to
get rid of particular stocks or shares which hang
heavy on hand. However, bearing this well in
mind, an investor may gain much useful infor-
mation from his broker, although for sound
advice his banker is to be preferred.
Members of the Stock Exchange are not
allowed to advertise themselves or their firms,
but most of the daily newspapers in London
have an agent in the house, either a jobber or
broker, who furnishes to his principal for publi-
cation a daily report of the state of the markets
and the current prices of the day, which in that
way reach the eye of the public. It may be
assumed that in the better class of journals the
information thus afforded is perfectly trust-
worthy, although some years since one of the
leading newspapers was imposed upon by its
agent, who took advantage of his position to
manipulate certain matters for his own ends.
Less scrupulous publications, however, are freely
made use of to influence the public, to cry up
or prejudice the markets and particular concerns.
The provincial broker, as a rule, limits his ad-
vertisement to the name and address of his firm,
with a quotation of the prices of a few of the
stocks mostly dealt in, and monthly, or quar-
terly, sends an extended list to his customers.
The outside broker who advertises himself freely
in the newspapers, as well as by pamphlets and
circulars, is to be avoided. He will invite you
to participate in his system -- always an in-
fallible one -- of operating. He will suggest
"options," "put and call," the "cover" system,
and other devices by which the inexperienced
may be mystified and beguiled into losing their
money. However astute a man may consider
himself, experience proves that, with amateurs,
this kind of gambling is sure to result in loss.
An ingenious mode of practising on the cre-
dulity of the public may be noticed in some
financial publications. An editorial notice or
subsidised paragraph will be inserted in the
paper, extolling the merits and predicting the
certain success of some concern which it is
desired to bolster up or to foist upon the public.
This is done in such a way that the reader is
expected to believe that it is the genuine ex-
pression of a truthful opinion by the editor, who
has obtained his information from unimpeach-
able sources. Of course, this peculiar kind of
advertisement has to be paid for, but it has its
advantages to the advertiser, for it can (for a
consideration) be quoted by the country papers
as unbiassed news, and attention called to it in
a money article or leaderette. The pamphlets
issued by the advertising outside broker are
sometimes amusingly artless in the endeavour
to sell shares and attract custom. On the first
page will be found some paragraphs setting
forth the merits and prospects of certain named
companies, and advising the reader to buy
shares in them without a day's delay, as a con-
siderable and speedy rise in value is assured.
One may be permitted to wonder why the
broker and all his friends do not rush in and
secure every share that is to be had. At the
end of the paper the reason will be discovered;
in every one of the concerns referred to shares
are offered for sale, which cannot be got rid of
in the regular market. It must be inferred that
some credulous persons are taken in by this
transparent artifice, or it would not be so con-
stantly practised. The object of these publica-
tions is chiefly to puff up doubtful securities, in
the hope that some fatuous speculator may be
tempted to buy. It is delightful when two of
these gentry fall out and expose each other's
knavery. The reader is assured that "Codlin's
his friend, not Short"; the latter is denounced
as a fraud and retaliates, but no action for libel
is brought, because both know that on either
side the imputation is justifiable.
It may excite surprise in some who are
favoured with circulars and prospectuses which
are, through the Post Office, sown broadcast
over the whole country, how the name and
address of a comparatively obscure individual
should be known. Prospectus and circular
distributing is a business conducted on a regular
system. When it is desired to invite subscrip-
tions to float some new company or to bolster
up some concern, the share lists of the same
sort of companies already in existence are
drawn upon for names and addresses; and
court directories also furnish a wide field for
operations.
At the present time the rage appears to have
set in for forming limited liability companies out
of private industrial concerns or trading firms.
Most of these companies, we are told by an
authority, "are brought out under the same
auspices" -- that is they are started and floated
by a skilled personage known as a "promoter."
The stereotyped prospectus must now be familiar
to most people, and the public respond freely
to the invitation to subscribe for shares, without
consideration or inquiry. The prospectus is
usually replete with statistics, showing the suc-
cess which has attended the business whilst in
private hands, and the enormous profits made;
and one is apt to wonder why they did not keep
it to themselves, instead of inviting the public
to share in the gains. But there are good com-
panies and bad companies, and it is to be feared
that the latter largely preponderate. A good
company may have a genuine reason for its
existence, such as the desire of a last surviving
partner to retire from active life, or the growth
of the business to such an extent that more
capital is required than could be obtained from
a private person, or upon some other equally
valid ground. A bad company is often the
make-shift to save a decaying firm from insol-
vency, or to dispose of a business at a price
quite out of proportion to its real value. The
prospectus affords no opportunity of discrimi-
nating what is genuine and likely to succeed
from what is false and sure to fail. If, as it has
been said, eighty per cent. of companies floated
sooner or later go to the wall, then, indeed,
inquiry and much circumspection are needed
before entering upon a speculation of the kind.
It must be said, however, that many companies
formed from trading concerns have become well
established and profitable, and if permanency
could be relied upon, they furnish a field for
lucrative investments. Those adventures which
are unduly pressed upon the notice of the public
should be regarded with suspicion. If a thing
is really good in itself, it will not require much
persuasion to commend itself; and if bad, no
purchased laudation will make it better. A
subtle mode of advertising is just now coming
into vogue, which, though expensive, will for a
time be successful. There need be no reflection
on the companies which adopt it, though calcu-
lated to beguile the innocent and confiding in-
vestor. A leaf or two introduced in some of
our illustrated papers, in no wise differing in
the printing from the remainder of the publica-
tion, and appearing as though it formed part
of the regular pabulum offered to the public.
This leaf or leaves contain well-executed pic-
tures of the works and machinery and other
interesting objects connected with the industry
of a company to which it is desired to call
attention, and a descriptive account is given of
its magnitude and success. To the casual reader
all this would appear to be a matter of public
interest, offered to the public as part of the
regular business of the paper, but it is only an
ingenious form of advertisement and has to be
paid for as such, but that is of no consequence
if the effect is produced, of a rise in the price
of the shares. There are some companies whose
shares are quoted at such enormous premiums,
and which pay such high dividends, that the
investor is sorely tempted to embark in similar
undertakings, apparently, that are brought be-
fore the public. But these prosperous concerns
are in most cases first taken up by a syndicate
-- that is, a certain limited number of persons
behind the scenes -- who finance and float the
company, and when success has been attained,
the public are granted the privilege of purchas-
ing shares -- but at such a price as the syndicate
choses to put upon them, and, not seldom, that
is the highest they ever attain. This is particu-
larly the case with mining companies, the
successful ones having certainly only benefited
the few. This syndicate system has given rise
to a bogus imitation, which, however, appears to
have met with but limited success. Circulars in
lithographed writing, marked "private and con-
fidential," and implying a friendly interest in
those addressed, are sent to persons whose
names are obtained in the manner already indi-
cated. An invitation is given them to join a
syndicate about to be formed to float a certain
company, the profits arising from the operation
being certain and enormous. Again, if it be
such an excellent and certain venture, why offer
a share to an entire stranger? These circulars
are very speciously worded, and there is an air
of candour about them likely to allure. Anyone
foolish enough to subscribe would probably,
after an interval, be informed that owing to un-
foreseen circumstances the adventure had turned
out a failure, and that all the money had gone
in expenses. Successful gold mines have
yielded large fortunes to their proprietors, but it
must be remembered that mines have but a
limited existence, and once they are worked out
the money invested in them is lost; for when
they cease to yield ore there is nothing more to
be obtained from them. Promiscuous dealing
in mine shares is nothing more or less than
gambling, or taking part in a lottery in which
the blanks are overwhelming and the prizes
next to nothing. If an enterprise has in it any
degree of soundness or promise, there are plenty
of the knowing ones ready to step in and take
all the advantages to be gained; it is the des-
perate ventures and unscrupulous swindles that
the public are mostly pressed to support -- only
to lose their money. It is to be hoped that the
dupes are at length awake to the pit-falls dug
for them by the mining company promoter and
speculator, whose seductive paragraphs are
everywhere in evidence in the advertising sheets
of the day.
A typical example -- and not a fictitious one
-- of hundreds of knavish concerns foisted on
the public may be quoted. A certain company,
of which no prospectus has been issued, nor of
which anything is publicly known, appears in
the mining lists. One day, a paragraph in a
financial paper reports that the agent for the
mines, on the spot, has cabled that the promise
of success exceeds all expectations, that samples
of ore, yielding three ounces to the ton, have
been found, and that the necessary machinery
must be sent out at once. This is followed up
by an editorial leaderette (of course, paid for),
in which the writer expresses surprise that the
shares of so promising an enterprise should be
at so low a price, and predicting a rapid advance
when the work is further developed. These
notices effect their purpose to the extent of rais-
ing the quotations of the shares a few shillings,
but this is not enough for the promoter; a cir-
cular is next issued, in the usual way, to the effect
that the directors have been fortunate enough to
secure additional property near their own, which
furnishes wood and water, so essential to the
proper development of the mine, and including,
moreover, alluvial pits abounding in gold. An
elaborate lithographed sketch of the property,
with mines at work and a steam-engine, accom-
panies the circular, and the whole presents an
appearance of real business. The next move is
the statutory meeting of the shareholders, which,
however, is very sparsely attended, as the vic-
tims are chiefly people residing in the country,
who do not care to incur the expense of a journey
to London. The man who presides at the meet-
ing, an outside broker, begins a speech by
apologising for the absence of the chairman of
the company (of whom the shareholders hear
for the first time), and then goes on to describe
with tedious detail the technical working of the
mine, the stopes and veins, and bunches of gold
that there are, and the stamps, machinery, &c.,
that there are to be. He describes what has
been done in the alluvial pits, and the prospect
of wealth to be drawn therefrom as beyond the
dreams of avarice, and winds up with warm con-
gratulation of the proprietors on the valuable
property they possess. Whether he has over-
done his part or something prejudicial to the
company leaks out, the shares which had
changed hands at 10s. gradually drop to 5s.
Then a circular goes the round in which some
member of the ring of knaves invites the public
to join a syndicate to buy up five thousand of these
shares which he has, through peculiar circum-
stances, been able to secure the refusal of at 4s.
a share. A special meeting of the shareholders
is next called, when it is announced that more
capital is required, and that it will be necessary
to pay up the one shilling per share which still
remains outstanding. A last desperate effort
to get rid of the shares at any price is then
resorted to before the call of one shilling per
share becomes payable, and some thousands are
offered at one shilling and sixpence each. After
the time has expired for paying the call, a last
circular is issued, intimating briefly that the
eminent engineer, who has originally given such
a glowing account of the mine, now reports that
there is no present indication of gold on the
property, but that possibly some might be found
if they dug deep enough!
The name of the company has disappeared
from the mining share list, and it will be heard
of no more. It is doubtful if there ever was any
property, or engineer, or board of directors, or, in
fact, anything more than the outside broker and
his confederates.
Of the _bona fide_ speculative undertakings in
South Africa and Australia, the exploration
and finance companies, or some few of them,
have made the largest profits. Their system,
broadly speaking, is to acquire certain tracts of
land in a gold-bearing district, and then let
small portions on lease to different subsidiary
companies, which have been floated to develop
gold or whatever else these portions may con-
tain. The price paid to the parent company is
made up of; perhaps, one half in cash and the
other in the shares of the new concern. An im-
mediate profit accrues from the payment in cash,
and there is a wide field for further gains if the
operations of the subsidiary companies are suc-
cessful. But in this, as in all speculative enter-
prises, the prizes have been few and the blanks
many.
CHAPTER IX.
LIFE INSURANCE.
LADIES do not take advantage of the system of
life insurance to the extent one would expect,
seeing the benefits it is capable of conferring
upon themselves and their belongings; and as
their indifference is no doubt, in many cases,
owing to a want of knowledge of the subject, a
chapter thereon may be useful.
Life insurance is an admirable system, devised,
in all its ramifications, to provide against loss or
damage through the various contingencies to
which human nature is subject.
A simple life insurance is that by which a
person may leave behind him a sum of money
for the benefit of those who, during his life, have
been dependent upon him. For example, a
husband, whose income is entirely derived from
his own exertions, desires to make some pro-
vision for his wife and children in the event of
his dying before them. At the age of thirty he
may, by paying £25 a year to an Insurance
Office, secure at his death, whenever it may
happen, £1,000, for the benefit of his wife or chil-
dren, or as he may direct by his will. In a way
insurance is a kind of savings bank, but impos-
ing an obligation on the part of the depositor to
save a certain sum every year. In the case of
the bank, the savings are optional, and cease at
death; whereas by insurance, the return of a
large sum is the result of the death of the com-
pulsory depositor. If a person put by £25 every
year and invested that sum in the Government
Funds at 2 1/2 per cent., or deposited the same sum
annually in a bank, at the same rate of interest,
it would take him twenty-eight years to accumu-
late £1,000, if he lived so long; whereas by an
insurance on his life for the same amount, if he
died a week after the first payment of £25 had
been made, the £1,000 insured would be paid to
his representatives. It might be said that if the
person lived longer than the term of twenty-
eight years and went on saving the £25 every
year, he would in the end accumulate more than
£1,000. This, however, is met by insuring in
such manner that the insurance carries "profits,"
that is, additions made by the gains of the office
from time to time. If insurance be made in this
manner, for which a slightly higher rate of pre-
mium is paid, it will be found that, however long
a person might live, more would accrue at death
by insurance than by saving.
There are in active existence so many insur-
ance companies of good repute and undoubted
stability that no difficulty need be experienced
in making a judicious selection. Of course, the
intelligent insurer would prefer an office whose
system would best suit his own requirements.
There are two kinds of Insurance Companies,
one known as a "Mutual" office, in which _all_ the
profits which may be earned are periodically
added to the amount insured, the other in the
form of a Joint-Stock Company, in which a small
proportion of the profits are distributed amongst
the Shareholders and the remainder added to
the Insurances. The Mutual Office dividing the
whole of its profits amongst the insured would
appear to be the more advantageous of the two,
and undoubtedly it is, all other things being
equal; but insurances may be effected which do
not share in the profits, at lower rate of pre-
mium, and in that case one system is as good as
the other. The intending insurer would do well
to obtain the prospectuses of several offices,
which he can easily do by writing for them
direct to the head office or by applying to the
several agents of the companies who abound in
all towns; and carefully compare one with
another. It will be found, perhaps, that one
office charges a less annual premium for an in-
surance than another, but this may be compen-
sated for by the latter declaring larger profits, or
giving advantages in other ways. For instance,
a certain "Mutual" office charges for an insur-
ance of £1,000, on the death of a person begin-
ning to insure at the age of thirty, a pre-
mium of £26 16s. 8d. per annum, whereas a
certain Joint-Stock Company's demand is only
£24 14s. 3d.; but the advantages offered by the
former in the shape of larger bonuses, though
deferred, are greater, while the benefit of a less
annual payment is of course immediate. Where
the insurance is effected at the same age and
for the same amount, but with no other benefit
or profit prospectively than the bare amount,
the premium in the former case is £21 4s. 2d.,
and in the latter £21 15s. 10d. There are good
offices, however, where the premium charged is
less than this.
There is at least one office which insures upon
what is called the half-credit system. One-half
the usual premium is paid for a certain term of
years, and thereafter the full premium is
charged. This may be useful in a case where
a person wishes to insure while young and the
premiums are low, and at the same time is desir-
ous of deferring the full payment until his income
is so improved that he can better afford it.
This system is carried still further by an in-
surer only paying half the premium during his
lifetime, the other half being accumulated until
his death, and then, with interest added, de-
ducted from the amount payable in respect of
the insurance policy.
Having chosen the insurance office or com-
pany which best suits his purpose, the proposer
applies to its nearest agent and makes known
his desire to insure his life. A form containing
printed queries somewhat like the following
(though offices differ somewhat in details) will
be placed before him and the blank spaces filled
in either by the agent or himself.
---------------------------------------------------------------------------------------------------------------------------------
| PROPOSAL FOR LIFE ASSURANCE |
|-------------------------------------------------------------------------------------------------------------------------------|
| | Full Name _____________________________________________________ |
| | Profession or Occupation ______________________________________ |
| 1. Life proposed to be Assured | Business Address ______________________________________________ |
| | Residence _____________________________________________________ |
| | Married or Single _____________________________________________ |
| ------------------------------------------------------------------------------------------------------------------|
| 2. Age next Birthday ________ years. Born at _________________________________________________________ |
| on the ___________________________ day of _______________ in the year 18_________ |
| (Evidence to be produced.) |
| ------------------------------------------------------------------------------------------------------------------|
| 3. Has he resided out of Europe? | |
| If so, where, and for what period? | |
| ------------------------------------------------------------------------------------------------------------------|
| 4. Is he, and has he always been, of sober and | |
| temperate habits? | |
| ------------------------------------------------------------------------------------------------------------------|
| 5. Has he had any serious illness or disease | |
| tending to shorten life? | |
| ------------------------------------------------------------------------------------------------------------------|
| 6. Has any near relative died of any hereditary| |
| disease? | |
| ------------------------------------------------------------------------------------------------------------------|
| 7. (1) Has a proposal to effect an Assurance on| |
| his life ever been declined? |_________________________________________________________________|
| (2) Or accepted at more than the ordinary | |
| rate? |_________________________________________________________________|
| (3) If so, on how many occasions, and | |
| when, and by what office or offices? | |
| ------------------------------------------------------------------------------------------------------------------|
| 8. Is there any other circumstance which ought | |
| to be communicated in order to enable the | |
| Company to judge fairly of the risk? | |
| ------------------------------------------------------------------------------------------------------------------|
|If the | Name __________________________________________________________ |
|person has 9. (1) Who is his usual Medical Attendant? | Residence _____________________________________________________ |
|never | Has known him ________________ years. |
|required (2) When was he last in professional atten- | Date of Attendance ____________________________________________ |
|Medical | Ailment _______________________________________________________ |
|attendance, ------------------------------------------------------------------------------------------------------------------|
|the fact | 1st Friend. | 2nd Friend. |
|should be | | (if necessary: see marginal note to |
|stated, and 10. Mention an intimate friend, who is not in- | | Question.) |
|reference terested in this Assurance, to be referred | Name ____________________ | ___________________________________ |
|given to to for information as to health and habits | Residence _______________ | ___________________________________ |
|TWO friends, of life | Profession or | |
|in answer to | Occupation ____________ | ___________________________________ |
|Question 10. | Has known him _____ years | Has known him _____ years. |
| ------------------------------------------------------------------------------------------------------------------|
|If the | Name __________________________________________________________ |
|Proposal be 11. Name, &c., of the person in whose favour | Profession or Occupation ______________________________________ |
|upon the the Assurance is to be effected? | Business Address ______________________________________________ |
|person's own | Residence _____________________________________________________ |
|life these ------------------------------------------------------------------------------------------------------------------|
|enquiries 12. Is the pecuniary interest in the Life to be | |
|need not be Assured, which is the object of this | |
|answered. Assurance, to the full amount thereof? | |
|-------------------------------------------------------------------------------------------------------------------------------|
| Sum to be Assured £_____________________________ With or without Profits? _____________________________________ |
| Is the Policy to be for Life? __________________ Are the premiums to be payable Yearly? _______________________ |
| I do hereby declare that the above statements are true, and that this Proposal and Declaration shall be the basis of |
| the contract for effecting the above-mentioned Assurance, which Assurance is also conditional on the accuracy, in all |
| respects, of the statement for the Medial Officer, made, or to be made, by the person whose life is proposed for Assurance. |
| Date __________________________________ Signature of the Person in |
| whose favour the Assur- _________________________________________________ |
| Witness _______________________________ ance is to be effected. |
| Address and Occupation ______________________________________ |
---------------------------------------------------------------------------------------------------------------------------------
The proposer has now to undergo one other
formality, disagreeable no doubt, but absolutely
necessary, and that is the medical examination.
This is done by the medical officer of the com-
pany who has to certify that the proposer is free
from any defect likely to shorten his natural life,
and that he is sound "in wind and limb." Defi-
ciency in the number of the latter is, however,
not considered unsoundness, as a person with
one arm, or one leg, or one eye may be just as
good a "life" and therefore equally eligible for
insurance with him who is perfect. All the en-
quiries in the form are made by the Office and
the expenses (including the doctor's fee) paid by
the Company.
If the proposal is accepted, the proposer is
informed of the fact and then pays his first pre-
mium in advance, it may be a year's, or half-a-
year's, or a quarter year's, at his own option,
and he then becomes (subject to the rules of the
particular company) the insured.
A few days subsequently a life policy will be
sent to the insured. This is a document setting
forth, in full, the terms of the agreement between
the Company and the insured, and must be care-
fully kept, in such wise that it may readily be
discovered by the person for whose benefit it is
ultimately intended. The writer once found
amongst some old papers a life policy in the
name of a man who had been dead for many
years. On enquiry at the office it was found
that the amount which was payable at his death
had, by some neglect, never been claimed.
The company of course at once paid the money,
and a needy sister was very much benefited.
Thirty days' grace are usually allowed for
subsequent payments of premium. It is custo-
mary for insurance offices to forward to each
policy holder a reminder, from one to four weeks
before the periodical payments for premium
become due, but the absence of any such notice
will not be accepted as an excuse for non-pay-
ment, and if the premium be not paid before the
thirty days' grace allowed have expired, the
policy becomes void. It may, however, be re-
vived upon paying a fine and producing a
medical certificate of health.
Should the proposal be declined the fact will
be notified to the proposer, but he will not be
informed of the reason. Proposals are rejected
because of something wrong being discovered by
the medical examiner, or because of intemperate
habits, or that the history of his near relations
in regard to health and longevity is unfavour-
able; anything in short that indicated that the
proposer will not, in all probability, live as long
as a healthy man is expected to live is enough
reason for declining to insure his life.
Insurances may be effected for a limited period,
say for one, three, or five years, at about one half
the premium charged for the whole term of life.
If the insured dies within the period, the amount
of the policy is paid, but the insurance ends with
the periods of time agreed upon. This class of
insurance is useful in many ways. For example:
A person with a certain income for life is desir-
ous of borrowing £500, to be repaid by annual
instalments. There would be no difficulty in
finding a lender, provided he could be sure of
repayment; and this could be secured in this
manner -- the borrower would assign to the lender
£100 a year of income for five years for the gra-
dual discharge of the loan; the borrower's life
would also be insured for five years and the
Policy assigned to the lender. If the borrower
lived for five years the loan would be paid out of
the income. In the event of his death, it would
be paid by means of the insurance money.
Another example: a child aged seventeen is
entitled to a fortune, large or small, at the age
of twenty-one, but meanwhile is wholly depen-
dent on its mother who has only an annuity for
her life. Should the mother die before the child
becomes of age the latter would be left without
the means of subsistence. In such a case the
prudent mother would insure her own life for the
four years which must elapse before the child
could come into the fortune, for such a sum as
would keep it from want, so that in case the
mother died the insurance money would provide
the means of living. The premium charged on
this class of insurance is moderate; about £2 6s.
for a person aged fifty; and the outlay by the
mother could be subsequently repaid when the
child was in a position to do so.
There are other special modes of insurance to
prevent loss or damage in cases of remote risk;
indeed almost any chance of loss through the
possibility of something improbable occurring
may be guarded against by insurance. For
instance, a lady aged forty-five has been married
for twenty years and has had no children. If she
has a son her property will descend to him; if
she dies childless it passes to a nephew. The
chance of the lady having a son is extremely
remote but still there is a possibility, and it is
against loss by this possibility happening that
the nephew takes out a policy of insurance for
any reasonable amount, the premium charged
being surprisingly small and payable in one sum
down.
BONUSES.
It has been mentioned in a previous page that
insurance has the advantage over the savings
bank, no matter how long a person may live,
and this is brought about by the operation of
Bonuses, so called. These are the whole pro-
fits in the case of a Mutual Company, and the
larger proportion of the profits in the case of
a Joint-Stock Company, which are distributed
amongst the policy holders. At the end of every
five years, in some cases seven, a valuation is
made of all the property of the Company and on
the other hand is ascertained what the company
is liable for, present and prospective. The
difference between the two constitutes the sur-
plus or profits, assuming of course that the assets
preponderate. This seems at first sight to be
a very simple process, but in reality the most
intricate calculations are necessary to arrive at
mathematical accuracy; but this needs no further
notice here. The bonus being declared, it may
be dealt with in various ways.
1. -- It may be added to the amount insured,
and so payable at death.
2. -- It may be commuted for an immediate
payment in cash. (In this case the amount
will, of course, be less than in No. 1.)
3. -- It may be applied in a permanent reduc-
tion of the future annual premiums, or a
proportionately larger reduction of these for
the next five or seven years, and in other
ways. Most offices granting every reason-
able facility for applying profits in any way
the insured may consider desirable.
_Endowment Insurance_. -- This is a class of
insurance by which an insurer may receive the
amount of a policy himself during his life, at
an age to be fixed at the time the insurance is
effected. Should he die before reaching the age
specified, the money is payable to his represen-
tatives.
It may also be so arranged that instead of
receiving the money at a certain age, he may be
paid a fixed sum annually for the rest of his life
thereafter.
For example -- a person at the age of thirty
may insure £1,000 to be paid to him on attain-
ing the age of sixty. The annual premiums for
insurances of this kind vary with different offices;
but they can be effected at the age named, at
about £28 10s. for the £1,000. If the person
died before attaining the specified age, the money
would be paid to his representatives; if he sur-
vived, he could either receive the £1,000, or be
granted an annuity for the remainder of his life
of £92 a year. In the case of females the
annuity would be £83 only, as they are supposed
to live longer than males.
_Non-forfeitable Policies_. -- This plan provides
for the continuance of insurance upon the life of
a policy holder should the insured from any cause
be unable to keep up his premiums. The prin-
ciple of this scheme ensures that, in considera-
tion of the premiums already paid, a policy for
a certain amount -- less of course than that named
in the original policy, which would be cancelled
-- would be granted freed from all future pay-
ments in respect of premiums, and the insurance
money of the new policy would be payable at
death. For example -- a person insures his life
for £1,000 at the age of thirty, the annual pre-
mium on which would be £25 a year. At the
age of forty he finds himself unable any longer
to pay the annual premium, but to avoid the
loss of the £250 which he has paid during the
ten years, he will surrender the old policy for
£1,000 and will be granted a new one, say for
half the amount, payable at death, and he will
not be called upon to pay any further premiums.
_Settlement Policies_. -- This class of policy is
issued under the Married Women's Property
Act (1882), whereby a trust can be created for
the benefit of a wife or children of an insured
person, the trustee being the Insurance Com-
pany. The advantage of this is that such a
policy does not constitute a part of the husband's
estate or become subject to his debts, either
whilst living or at his death, so that in the
latter event the money is paid to the widow or
children direct for their own use. A policy of
this kind, if necessity should arise, could also be
exchanged for a non-forfeitable policy in the
manner before pointed out.
_Endowments for Children_. -- A parent, by paying
a premium of about £5 5s. annually, can secure
to a child aged six a sum of £100, on its attain-
ing the age of twenty-one. Should the child die
before reaching that age, the money paid in pre-
miums is not lost, for it is all returned to the
parent without deduction.
By this means a marriage portion or outfit for
a girl, or a start in business for a boy can be
provided to any amount that may be desired.
_Insurance on Joint Lives_ is another mode of
insurance, very useful in particular cases. For
example: a mother aged fifty has an income,
for her life and no longer, of £300 a year, and
she has a daughter aged twenty, who has no
means of her own, present or prospective, being
entirely dependent on her mother. The joint
lives are insured for, say, £2,000, which would
cost in premium £100 a year; the insurance
money to be paid at the death of the first of the
two. If the daughter died first the mother would
get back, by the insurance money, possibly
more than she had paid in premiums. If the
mother died first, say at the age of seventy, by
that time the daughter would have attained the
age of forty, and the £2,000 would be paid to
her. With the money she might, if she so
pleased, buy an annuity for life of £110 a year.
_Insurance on the Longest of Two Lives_, payable
on the death of the survivor, is useful in cases
where land or house property is held on lease,
so that there may be no pecuniary loss when the
lease expires. The rate of premium is in this
case naturally less than where the insurance is
to be paid on the earlier of the two deaths.
SURRENDERS.
If from any cause it is desired to give up a
policy and discontinue paying any more pre-
miums, the offices will pay to the insured what
is called the surrender value of the policy, at the
same time cancelling it and all its conditions.
This surrender value may be roughly calculated
at about 40 per cent. of the premiums paid, in a
case were bonuses have been added to a policy,
and about 33 per cent. of the premiums paid in
a case where the bonuses have not been so
applied. For example: a person has paid £25
a year in premiums for ten years -- in all £250 --
on a policy for £1,000, to which has been added
£60 in the shape of bonuses. The surrender
value in such a case would be £100. But if the
insured had taken his bonuses in cash, or his
policy did not carry profits, then the surrender
value would be £82 10s. only.
Any insurance office will lend the insured, on
the security of the policy, an amount of money
not exceeding the surrender value, and the rate
of interest is usually moderate.
In this case there would be no necessity to
abandon the policy, which would be kept alive
and increased by added bonuses as before.
FIRE INSURANCE.
This is a distinct branch of insurance business,
the object being to compensate a person in case
of pecuniary loss through the accidental burning
of his property. By paying annually a com-
paratively small amount in the shape of pre-
mium, a person may insure that in case of the
destruction by fire of such of his goods as may
be specified in a fire policy, issued by the Insur-
ance Company, he will be recouped their value.
Nearly all the Fire Insurance offices are agreed
in charging a certain rate of premium, which is
called the tariff rate. For dwelling-houses built
of brick or stone with slate or tile roof, the rate
is only 1s. 6d. for every £100. For more hazard-
ous buildings such as thatched houses, ware-
houses, inns, shops, &c., the rates are higher,
according to the nature of the risk. Household
furniture and the other contents of a brick or
stone house can be insured at various rates, or
they may be included in one insurance with the
house, when the rate would be 2s. per cent. for
the whole.
It should be remembered that there is a limit,
usually of 5 per cent., of the whole sum so in-
sured, placed on any one work of art which may
be destroyed.
For instance, a picture valued at £200 maybe
burnt in a house which, with the contents, is
insured for £2,000 If the picture were alone
destroyed, the office would only compensate to
the extent of £100, being 5 per cent. on the
£2,000, the total amount of the insurance. Any
particular picture or work of art may, however,
be specially insured by itself.
Insurances should never be made for a greater
sum than the value of the property insured, as it
would be paying more premium for no purpose.
The offices take good care that they pay no more
than the actual value of the property destroyed,
which they have the means of ascertaining with
some degree of accuracy.
It has been found necessary to subject the
insurance of farming stock to special conditions.
A farmer having stock of the value, say, of
£1,000, might reason in this way: "My ricks,
implements, crops, &c., are situated widely
apart, and it is difficult to imagine that all could
be consumed in one and the same fire; therefore,
I will insure the whole stock for £500 only, then
I shall have to pay only half the amount in the
premium I should be liable for in case I insured
to the full value." The offices are, however, quite
alive to this kind of reasoning, and frustrate
the intention by inserting what is called the
"average" clause in the policy, the effect of
which is that in the event of a claim being made
for loss by fire, only one half of the value would
be made because only one half of the value of the
stock was insured. Live stock, however, may be
separately insured without the average clause,
and animals killed by lightning are paid for if
insured against loss by fire.
There are other offices which insure against
loss by special contingencies, such as damage to
glass houses, and cattle, and garden produce, by
hailstorms; destruction of boilers by explosion,
of plate glass, and from accident or disease
affecting cattle. There are companies, too, which
insure against accidents sustained by rail, road,
or water, guaranteeing a specified sum in case of
death, and compensation in case of injury. Also
societies which take the place of sureties and
guarantee an insurer against loss or default by
anyone in his employ; and companies which
undertake to make good any loss arising from
burglary or larceny. In all cases, of course,
the liability of the office is limited to a certain
declared amount.
CHAPTER X.
BUILDING SOCIETIES.
THE main object of a Building Society is to aid
a man to become proprietor of his own dwelling.
This can be accomplished by means of the society
in two different ways:- 1, by depositing with
the society periodical money savings until, with
the interest allowed, enough has been accumu-
lated to buy a house; 2, by borrowing from the
society a sufficient sum to purchase a house
and repaying the loan, with interest, by instal-
ments spread over a term of years. A person
desiring to become a depositor must qualify for
membership of the society by paying an entrance
fee of; say, 2s. 6d. He then takes up a share and,
by paying periodical instalments according to
the tables, he becomes entitled at the end of the
appointed time to receive £100.
The same applies proportionately to a half
share of £50 or to a quarter share of £25. For
example, as regards the whole share, a person
paying 13s. a month regularly to the society is
entitled, at the end of ten years, to be repaid a
lump sum of £100, and any bonus added thereto
which the profits of the society may afford. If the
term be fifteen years, then, to secure £100, he will
have to pay only 7s. 7d. every month, and if
twenty-one years, then a monthly payment of
4s. 7d. The terms vary in different societies,
but those quoted have been adopted by an exist-
ing institution of repute. If the term of ten
years is selected, the depositor will have saved
and paid to the society (with added interest) £78
in all; if the term of fifteen years is chosen he
will have paid £68 5s. in all; and if twenty-one
years be adopted, £57 15s. In either case, at the
end of the term he has selected, the depositor
will be paid back £100. Thus any one taking
a share for £100, and keeping up the instalments
for twenty-one years, will in the end have paid
only £57 15s. for it -- the difference being met
by the interest paid by borrowers from the
society. The following table shows particulars
of other terms and the monthly subscription
payable:-
-----------------------------------------------
| Term | Monthly Sub- | Term | Monthly Sub- |
| of |scription for a| of |scription for a|
|Years.| £100 share. |Years.| £100 share. |
|------|---------------|------|---------------|
| | £ s. d. | | £ s. d. |
| 3 | 2 12 10 | 13 | 0 9 1 |
| 4 | 1 18 8 | 14 | 0 8 4 |
| 5 | 1 10 2 | 15 | 0 7 7 |
| 6 | 1 4 6 | 16 | 0 6 11 |
| 7 | 1 0 6 | 17 | 0 6 4 |
| 8 | 0 17 6 | 18 | 0 5 10 |
| 9 | 0 15 2 | 19 | 0 5 4 |
| 10 | 0 13 0 | 20 | 0 5 0 |
| 11 | 0 11 8 | 21 | 0 4 7 |
| 12 | 0 10 6 | | |
-----------------------------------------------
After the first year a depositor may, if desirous,
withdraw, on giving one month's notice, the full
amount he has paid, with interest, to the date
when the subscription ceases. This prevents
the possibility of any loss arising to a depositor
in the event of his being unable to keep up his
instalments, or desiring from any cause to with-
draw from the society. It may, however, in case
of a loss of confidence, operate seriously against
the society, by the sudden withdrawal of de-
posits. The following table shows the amount
that could be claimed, in respect of the monthly
subscriptions paid, at the end of the several
years of membership.
SHOWING THE AMOUNT WITHDRAWABLE AT THE END OF EACH YEAR FOR THE
RESPECTIVE MONTHLY SUBSCRIPTIONS STATED IN THE ABOVE TABLE.
------------------------------------------------------------------------------------------------------------------------
| At the | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | | | | | |
| end of | 2 12 10 | 1 18 8 | 1 10 2 | 1 4 6 | 1 0 6 | 17s. 6d. | 15s. 2d. | 13s. | 11s. 8d. | 10s. 6d. |
|Year of | per | per | per | per | per | per | per | per | per | per |
| Mem- | month, | month, | month, | month, | month, | month, | month, | month, | month, | month, |
|bership.| 3 years.| 4 years.| 5 years.| 6 years.| 7 years.| 8 years.| 9 years.| 10 years.| 11 years.| 12 years.|
|--------|----------|----------|----------|----------|----------|----------|----------|----------|----------|----------|
| | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. |
| 1st | 31 14 0 | 23 4 0 | 18 2 0 | 14 14 0 | 12 6 0 | 10 10 0 | 9 2 0 | 7 16 0 | 7 0 0 | 6 6 0 |
| 2nd | 64 19 0 | 47 11 0 | 37 2 0 | 30 2 8 | 25 4 2 | 21 10 6 | 18 13 1 | 15 19 9 | 14 7 0 | 12 18 3 |
| 3rd |100 0 0 | 73 2 0 | 57 1 2 | 46 6 10 | 38 15 6 | 33 2 0 | 28 13 9 | 24 11 9 | 22 1 4 | 19 17 2 |
| 4th | -- |100 0 0 | 78 0 2 | 63 7 2 | 53 0 2 | 45 5 1 | 39 4 5 | 33 12 4 | 30 3 5 | 27 3 0 |
| 5th | -- | -- |100 0 0 | 81 4 6 | 67 19 2 | 58 0 4 | 50 5 8 | 43 1 11 | 38 13 7 | 34 16 2 |
| 6th | -- | -- | -- |100 0 0 | 83 13 2 | 71 8 4 | 61 17 11 | 53 1 1 | 47 12 3 | 42 17 0 |
| 7th | -- | -- | -- | -- |100 0 0 | 85 9 9 | 74 1 10 | 63 10 1 | 56 19 10 | 51 5 10 |
| 8th | -- | -- | -- | -- | -- |100 0 0 | 86 17 11 | 74 9 7 | 66 16 10 | 60 3 1 |
| 9th | -- | -- | -- | -- | -- | -- |100 0 0 | 86 0 1 | 77 3 8 | 69 9 3 |
| 10th | -- | -- | -- | -- | -- | -- | -- |100 0 0 | 88 0 10 | 79 4 9 |
| 11th | -- | -- | -- | -- | -- | -- | -- | -- |100 0 0 | 89 9 11 |
| 12th | -- | -- | -- | -- | -- | -- | -- | -- | -- |100 0 0 |
| 13th | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- |
| 14th | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- |
| 15th | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- |
| 16th | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- |
| 17th | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- |
| 18th | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- |
| 19th | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- |
| 20th | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- |
| 21st | -- | -- | -- | -- | -- | -- | -- | -- | -- | -- |
------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
| At the | | | | | | | | | |
| end of | 9s. 1d. | 8s. 4d. | 7s. 7d. | 6s. 11d. | 6s. 4d. | 5s. 10d. | 5s. 4d. | 5s. | 4s. 7d. |
|Year of | per | per | per | per | per | per | per | per | per |
| Mem- | month, | month, | month, | month, | month, | month, | month, | month, | month, |
|bership.| 13 years.| 14 years.| 15 years.| 16 years.| 17 years.| 18 years.| 19 years.| 20 years.| 21 years.|
|--------|----------|----------|----------|----------|----------|----------|----------|----------|----------|
| | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. | £ s. d. |
| 1st | 5 9 0 | 5 0 0 | 4 11 0 | 4 3 0 | 3 16 0 | 3 10 0 | 3 4 0 | 3 0 0 | 2 15 0 |
| 2nd | 11 3 5 | 10 5 0 | 9 6 5 | 8 10 2 | 7 15 10 | 7 3 5 | 6 11 3 | 6 3 0 | 5 12 9 |
| 3rd | 17 3 8 | 15 15 2 | 14 6 8 | 13 1 5 | 11 19 7 | 11 0 5 | 10 1 9 | 9 9 1 | 8 13 5 |
| 4th | 23 9 9 | 21 11 0 | 19 11 10 | 17 17 5 | 16 7 7 | 15 1 5 | 13 15 10 | 12 18 7 | 11 17 1 |
| 5th | 30 2 3 | 27 12 6 | 25 2 3 | 22 18 3 | 20 19 11 | 19 6 5 | 17 13 8 | 16 11 6 | 15 3 11 |
| 6th | 37 1 5 | 34 0 3 | 30 18 3 | 28 4 0 | 25 16 11 | 23 15 8 | 21 15 4 | 20 8 1 | 18 14 1 |
| 7th | 45 4 2 | 40 14 2 | 37 0 0 | 33 15 3 | 30 18 9 | 28 9 3 | 26 1 1 | 24 8 6 | 22 7 10 |
| 8th | 53 18 9 | 49 8 3 | 44 18 0 | 40 19 10 | 36 5 8 | 33 7 8 | 30 11 1 | 28 12 11 | 26 5 2 |
| 9th | 62 2 4 | 56 17 8 | 51 13 10 | 47 3 8 | 43 3 5 | 39 14 10 | 35 5 8 | 34 2 7 | 30 6 5 |
| 10th | 70 13 5 | 64 14 6 | 58 16 5 | 53 13 8 | 49 2 7 | 45 4 5 | 41 7 5 | 38 16 8 | 34 11 9 |
| 11th | 79 13 1 | 72 19 4 | 66 6 3 | 60 10 3 | 55 7 9 | 50 19 8 | 46 12 10 | 43 15 7 | 40 1 5 |
| 12th | 89 1 9 | 81 12 4 | 74 3 5 | 67 13 8 | 61 19 1 | 57 0 5 | 52 3 5 | 48 19 5 | 44 16 5 |
| 13th |100 0 0 | 90 16 8 | 82 8 5 | 75 4 2 | 68 17 0 | 63 7 5 | 57 19 7 | 54 10 0 | 49 16 3 |
| 14th | -- |100 0 0 | 91 1 9 | 83 2 5 | 76 1 10 | 70 0 8 | 64 1 6 | 60 0 0 | 55 1 1 |
| 15th | -- | -- |100 0 0 | 91 8 5 | 83 13 11 | 77 0 ___| 70 9 7 | 65 18 8 | 60 11 1 |
| 16th | -- | -- | -- |100 0 0 | 91 8 5 | 84 7 8 | 77 4 0 | 72 3 5 | 66 6 8 |
| 17th | -- | -- | -- | -- |100 0 0 | 92 1 10 | 84 5 3 | 78 14 5 | 72 8 0 |
| 18th | -- | -- | -- | -- | -- |100 0 0 | 91 13 6 | 85 11 11 | 78 15 5 |
| 19th | -- | -- | -- | -- | -- | -- |100 0 0 | 92 16 4 | 85 9 2 |
| 20th | -- | -- | -- | -- | -- | -- | -- |100 0 0 | 92 9 8 |
| 21st | -- | -- | -- | -- | -- | -- | -- | -- |100 0 0 |
-------------------------------------------------------------------------------------------------------------
For example, the depositor of 13s. a month
for a ten years' term, if he desired to withdraw
his savings at the end of six years, would be
entitled to £53 1s. 1d.; the depositor of 7s. 7d. a
month for fifteen years could claim, at the end of
the ninth year, £51 13s. 10d.; and the depositor
of 4s. 7d. a month for twenty-one years could
get back £44 16s. 5d. at the expiration of the
twelfth year. In each case the earnings of the
depositor would have been increased by the
interest added.
BORROWERS.
A member desiring to effect an immediate
purchase of a house or property may borrow the
money required by depositing the title deeds
with the society as security, and repaying the
loan by instalments, monthly or quarterly.
Or if he elect to build a house himself; he
deposits the deeds of the land with the society
and takes up a loan by instalments as the work
proceeds. In this case an architect or surveyor
would have to give a certificate from time
to time to the effect that so much money could
be advanced upon the work actually done; and
the repayment of the loan would only begin
when the house was finished. The following
table shows the repayments required, including
interest for each £100 advanced:-
--------------------------------------------
| Term of years. | Monthly. | Quarterly. |
|----------------|------------|------------|
| | £ s. d. | £ s. d. |
| 1 | 8 14 0 | 26 4 6 |
| 2 | 4 10 0 | 13 11 4 |
| 3 | 3 3 0 | 9 9 11 |
| 4 | 2 8 9 | 7 7 0 |
| 5 | 2 0 3 | 6 1 4 |
| 6 | 1 14 7 | 5 4 3 |
| 7 | 1 10 6 | 4 12 0 |
| 8 | 1 7 6 | 4 2 11 |
| 9 | 1 5 2 | 3 15 11 |
| 10 | 1 3 5 | 3 10 7 |
| 11 | 1 1 11 | 3 6 1 |
| 12 | 1 0 8 | 3 2 4 |
| 13 | 0 19 8 | 2 19 4 |
| 14 | 0 18 9 | 2 16 6 |
| 15 | 0 18 0 | 2 14 3 |
| 16 | 0 17 4 | 2 12 3 |
| 17 | 0 16 9 | 2 10 6 |
| 18 | 0 16 2 | 2 8 9 |
| 19 | 0 15 8 | 2 7 3 |
| 20 | 0 15 3 | 2 6 0 |
| 21 | 0 14 11 | 2 5 0 |
--------------------------------------------
And in like proportion for larger or smaller
loans.
In many societies it is a common practice to
ballot amongst the members for the right to
receive an advance (sometimes without carrying
interest) which right may be transferred, for a
consideration, to some other member.
By this table it will be seen that a person
borrowing £100 for ten years would have to
repay the amount by monthly instalments of
£1 3s. 5d., or by quarterly instalments of
£3 10s. 7d., and if borrowing for a term of
twenty-one years, then by monthly instalments
of 14s. 11d., or quarterly of £2 5s.
Now, if we refer to the depositor's table of
rates, we shall find that he has, for a ten years'
term, paid to the society £78, and received back
£100; thus receiving from the society £22 (the
difference) for the use of the money, plus the
interest added. On the other hand, a borrower
of £100 for the same term pays back, beyond
the capital sum of £100, as much as £40 2s. in
interest. Thus there is a difference of £18 2s.
between the interest received by the depositor
and that paid by the borrower. This constitutes
the gross gain of the society on these trans-
actions, but out of it has to be paid the expenses
of the office, salaries of officials, and a reserve
provided for bad debts, &c.
The social and moral utility of societies estab-
lished for the direct purpose of aiding a man to
become proprietor of his dwelling-house is obvi-
ous, and the above calculations seem to show
that a society conducted on the plan represented
would earn an ample margin of profit for all
contingencies.
Doubtless the greater number of the existing
building societies, including the one whose
figures have been quoted, are conducted in a safe
and legitimate manner, but there have been, and
may still be, exceptions.
As an inducement to join a building society,
people are told that they have to pay, on the
instalment system, the same as though they paid
the rent of a house, and in a few years will
become the owner. A man who has paid for
three or four years only what he would have paid
for rent, would have very little hesitation in
throwing up his contract with the society, if the
locality became objectionable to him or the in-
evitable repairs of a cheap house were more than
he could bear. The money borrowed is lent
chiefly upon the security of small suburban
houses, a kind of property always in course of
depreciation, and it may be that the society
would have returned upon its hands a number of
houses in a bad state of repair and in a dete-
riorating locality. The instalments having ceased
and the houses void, the property becomes a
profitless burden upon the society and a probable
ultimate loss. When "jerry" builders are large
customers of a building society and have some
influence, direct or indirect, with its Board of
Directors, the evil is greatly aggravated. Whole
streets are built with borrowed money, on specu-
lation until, perhaps, there are twice as many
houses as can possibly be let.
The society, to protect itself, is bound to con-
tinue advancing until it is drawn completely into
the net and finds itself encumbered with a lot of
unsaleable and useless property. To stave off
the evil day when all things must be disclosed
to the trusting member, "financing" is restored
to, money raised on direct deposit, and advances
obtained from banks. The money thus raised
tides the society over their difficulties for a time,
but it may be that some rumour or report influ-
ences members and depositors to withdraw their
money, and eventually the coffers are empty and
the end arrives.
Unhappily, in the collapse of more than one
building society during the last few years there
have been revealed frauds and dishonesty of the
most flagrant character, and hundreds of trusting
investors of the industrial classes have been
ruined through the machinations of scoundrels,
some of whom posed as philanthropists and ultra
righteous members of society. To protect the
interests of members and depositors, only men
of unimpeachable character and business ability
should be elected Directors of a building society,
and the audit ought to be of the strictest char-
acter. The balance-sheet should present details
of the securities upon which the advances are
made, and the auditors should certify that they
have examined the deeds and identified them
as representing the property described in the
balance-sheet. Generally speaking, the auditors
appointed by the members are not lawyers, and
have not the necessary skill for verifying the
documents relating to the property, indeed they
are not expected to do so. One of the auditors
should certainly be legally qualified to ascertain
that the securities of the society do represent the
properties set forth in the balance-sheet, and he
should give a certificate to that effect. If this
course were insisted upon, such scandals as have
been brought to light could hardly be repeated,
where one set of deeds was made to do duty for
the assets of three distinct societies, each man-
aged by the same Board of Directors; and the case
in which the deeds of abandoned or destroyed
property were palmed off upon the auditors to
represent securities which had practically no
existence. The industrial classes are less careful
than those above them in seeing to the safety of
their investments, and some legislation seems to
be called for to prevent their hard-earned savings
being frittered away by bad management or rank
dishonesty.
CHAPTER XI.
THE POST OFFICE SAVINGS BANK.
THIS institution offers a most admirable, con-
venient, and secure depository for the savings of
the industrial classes and of others. Its value
to the thrifty and timid investor is incalculable,
for here he may rest satisfied that he has abso-
lute security, and the system is so hedged about
with safeguards that it is difficult to discover
any means by which loss can be sustained. The
interest allowed is not high, but reasonable
enough when the perfect security and the facili-
ties offered are taken into consideration.
Money may be deposited by any person over
seven years of age, and by anyone on behalf of
children under seven. Also by married women,
and with this advantage, that such deposits,
unless and until the contrary is proved, are
deemed to be the property of such married
woman; moreover, the fact that any deposit is
standing in the name of a married woman
being _prima facie_ evidence that she is entitled
to draw the same without the consent of her
husband.
Deposits may be made by two or more per-
sons, provided no one of them has any other
account in a Savings Bank, and by one person
as trustee for another person. On opening an
account a person has to sign a declaration to the
effect that he takes no personal benefit from any
other account in the Post Office Savings Bank
or in a Trustee Savings Bank, and should this
declaration not be true all sums so deposited
will be liable to forfeiture.
Any person opening an account, that is, de-
positing money with a Post Office Savings Bank,
will receive a book in which the amount is
entered, and the signature of the Postmaster and
stamp of the office affixed to the entry. In
addition to this he will receive from the depart-
ment in London, a few days after, a receipt for
the amount. Once in each year, on the anni-
versary of the day on which his first deposit was
made, the depositor should forward his book to
the Controller of Savings Banks, London, in
order that it may be compared with the books
of the department in London, and that the in-
terest may be inserted in it. A depositor may
add to his deposits at, and withdraw the whole
or any part of them from, any Post Office in the
United Kingdom without change of deposit-
book. It will thus be obvious that all deposit
accounts, although operated upon through the
branch post office, are really kept at the Savings
Bank Department in London, and depositors
are so kept in touch with the department that
complete protection is afforded them.
Any sum from one shilling upwards (but
excluding pence) may be deposited, subject to
certain limits. These limits are £50 a year, that
is, no more than £50 will be received on deposit
in any one year, but any withdrawals during the
year may be re-deposited once, and once only.
No more than £200 in all can be held on behalf
of a depositor. The reason for these limits
apparently is that the bank was created for the
encouragement of saving habits in, and providing
a secure place for, the money of thrifty people
of small means, and not for investment of the
capital of the wealthy. Interest at £2 10s. per
cent. per annum, which is at the rate of sixpence
a year, or one halfpenny a month, for each com-
plete pound, is allowed on ordinary deposits and
added to the principal; but when, by the addi-
tion of interest or from any other cause, the
deposit is raised to above £200, interest is
allowed on £200 only, and the excess over that
sum, when it amounts to £5, is applied to the
purchase of Government Stock, unless the de-
positor desires otherwise. When a person has
£200 to the credit of his deposit account, he
cannot make any further addition thereto, but
the Post Office will invest this sum, or any part
of it, for the depositor in Government Stock, and
he can then continue paying in money to his
account as before until the sum again reaches
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