From storing spare coins in a clay jar in the 15thcentury to managing stocks online in the present day, Good With Money charts the eventful history of how we save our money.
Pensions
Pensions are thought to date back to Roman times when centurions received an “annuity” when they left active service. In 1874, the first nurses’ pension paid £15 per year to “broken down” carers. This was followed by the National Pension Fund for Nurses in 1887.
The Government brought in the first “old age” pension in 1908, paying five shillings a week (£14 today) to men over 70 – at a time when the average life expectancy was just 47. In 1925 a skeleton contributory state pension scheme paid 10 shillings a week (£15 today) from age 65 to male manual workers who earned less than £250 a year.
It wasn’t until 1940, after the outbreak of the Second World War, that women were offered a similar scheme. The Old Age and Widows’ Pension Act introduced a pension age of 60 for unmarried women who paid in, and widows of insured men. The modern universal compulsory state pension didn’t arrive until 1948.
The post-war shortage of manpower led firms to offer attractive company pensions to retain managerial and skilled staff. By 1967, more than eight million employees working for private companies enjoyed a final salary pension, along with four million state workers.
In 1978, the Labour government introduced an “earnings-linked” state top-up system for those without access to a company scheme.
Image courtesy of True Potential Investor
Ten years later, the Thatcher government introduced widespread reform. Companies lost their power to control the labour market and people were given the right to not join their employer’s scheme.
The Thatcher scheme turned sour, however, in 1993 when it emerged that unscrupulous financial advisers were mis-selling personal pensions to earn fat commissions. This triggered payments of more than £11 billion to six million people. The Pension Protection Fund was established in 2004 to bail out collapsing funds.
Around this time, the industry realised it had massively underestimated life expectancy. The female pension age was increased to 65, and to 66 for anyone then in their late 50s, and 67 for those in their mid-50. It is now likely that younger generations will have to work until they are 70 to get a state pension.
Fast forward to the present day and not only can a pension look after us in old age, it can also help to look after the planet. If you’d like to know more about ethical pensions, take a look at our top five ethical pension funds for 2019.
Stock market
In 1602, the Dutch East India Company released shares on the Amsterdam Stock Exchange, making it the world’s first publicly traded company. Stocks and bonds were issued to investors, entitling them to a percentage of profits.
The early days of the stock market were a bit like the Wild West. In London, businesses opened up overnight and issued stocks and shares in crazy new ventures. There was no regulation and few ways to tell legitimate companies from illegitimate ones. As a result, the bubble burst. Companies stopped paying dividends to investors and the Government banned the issuing of shares until 1825.
The London Stock Exchange was officially formed in 1801, followed by the New York Stock Exchange in 1817. Today, virtually every country in the world has its own stock market. In 1971, the National Association of Securities Dealers and Financial Industry Regulatory Authority created the NASDAQ stock exchange.
NASDAQ is held entirely on a network of computers and all trades are performed electronically.
Stock market indices are an important part of modern stock markets. The Dow Jones Industrial Average was created by Wall Street Journal editor Charles Dow and investor Edward Jones. Today, other major stock market indices include the Nasdaq Composite, the S&P 500, and the Russell 2000.
For advice on investing in stocks and shares, see our Good Guide to Stocks and Shares ISAs.
Personal savings
In the 15th century, people used kitchen pots made of an economical clay called “PYGG” to save their spare coins. The word evolved to “pig” and eventually to “piggy bank”.
The Bank of England was founded in 1694 as a private bank to the Government, to fund the war effort against France. The King and Queen of the time, William and Mary, were two of the original stockholders.
In 1778, Royal Bank of Scotland invented the overdraft when it allowed merchant William Hog to take £1,000 (£63,664 today) more out of his account than he had in it.
In those times, bank accounts were a luxury only for the rich. They didn’t catch on in Europe until the Middle Ages when Jewish merchants fleeing Spanish persecution settled in wealthy Italian cities.
In 1810 Rev. Henry Duncan established the Savings & Friendly Society in Scotland to encourage poorer people to save. Within five years, the savings account had spread across the Western world.
While women earned the right to open a bank account independently in the 1800s, banks were still perceived as a male environment. Most women hid their money in their stockings. In the early 1900s, US banks opened stocking rooms, where women could remove their money in private.
The first Bank of England branches were established in 1826 in response to the financial crisis of 1825 to 1826, which saw many country and provincial banks fail. In 1983 the face of banking changed forever when the Nottingham Building Society became the first bank in Europe to offer online banking.
Building Societies
Building societies began in 1775 as a way of people helping each other to buy properties. The first formal recognition of building societies’ rights came in 1812.
By 1825 there were over 250 building societies in the UK. By 1910, this had risen to 1,723 societies with 626,000 members and total assets of over £76 million.
Over the following decades the number of societies decreased, as many merged to form larger ones, often renaming in the process, and others opted for demutualisation followed by – in the great majority of cases – eventual takeover by a listed bank.
There are now around 50 building societies in the UK, with total assets exceeding £360 billion. Although their numbers have dwindled, building societies can offer better savings rates than banks.
