Ver.04.29.93*END*
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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.
by
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 . . . . . . . . . . . . . . . 143
Acknowledging Receipt . . . . . . . . . . . . . 144
Transfer to Deposit Account . . . . . . . . . . 144
Arranging Cheques to be Honored by Another Bank 145
Request for Passport and Circular Notes . . . . 145
Ordering Letter of Credit . . . . . . . . . . . 146
Remitting in this Country . . . . . . . . . . . 146
Lodging Securities at Bank . . . . . . . . . . 147
Order to Receive Dividends . . . . . . . . . . 147
Ordering Investments . . . . . . . . . . . . . 148
EVERYBODY'S GUIDE
TO
MONEY MATTERS.
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:-
---------------------------------------------------------
| No. 10901. | No. 10901. __March_I,_ 1898 |
| | |
| March I, 1898 | To the Blankshire Banking Company, |
| | Blanktown. |
| | |
| ____Self_____ | Pay to ___Self_____________ or bearer |
| | |
| | the sum of ___Ten_Pounds_____________ |
| | |
| £10__________ | £10_________ __Jane_Smith__ |
| | |
---------------------------------------------------------
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.