The thrift movement. Who taught children to save, and what those teachers did in Washington

One pupil in six

The first mass money education for American children was run by banks. The first school savings bank opened in 1889 near Philadelphia. There were fifty schools by 1890. At the peak in the late 1920s, about one school pupil in six took part, depositing pennies at a desk in the classroom into an account at a local bank. There were about 15,000 school banks in the late 1920s and 3,500 by 1947.¹

The American Bankers Association encouraged its members to sponsor them from the 1910s.¹ Alongside them came National Thrift Week, held each January from Benjamin Franklin's birthday, with a theme for each day: savings on Monday, budgets on Tuesday, insurance on Wednesday, home-owning on Thursday, wills on Friday, debts on Saturday, charity on Sunday.²

The lesson was sound. Children who saved pennies learned a habit. The lesson was also a customer-acquisition program, and the banks that ran it knew which it was.

What the same association did about the competition

In 1907 a banking panic wiped out depositors and revived an old idea: let people save at the post office, backed by the government, so that a small saver need never trust a private bank. The American Bankers Association "launched a large-scale lobbying campaign" against it.³

The Postal Savings Act that passed in 1910 shows what the campaign won. Deposits were capped at $500. The post office paid 2 percent when the market rate was about 3.5 percent. And from 1911 to 1916, 90 to 95 percent of the money deposited at post offices was redeposited into local banks, at 2.25 percent.³ The public option was allowed to exist, made unattractive, and turned into a funnel for the private banks.

So in the same decade, the same association taught a generation of children that saving in a bank was a virtue, and made sure that the safest alternative to a bank paid less than the bank and handed its deposits to the bank anyway.

The parables that came with the pamphlets

The best-selling thrift book of the era began as advertising. George Clason's parables of ancient Babylon, with their rule to keep a tenth of everything you earn, were first distributed as pamphlets by banks and insurance companies from 1920 to 1924, and bound into The Richest Man in Babylon in 1926.⁴ The advice is good. The distribution channel was the seller.

What the thrift movement left out

The thrift movement gave personal finance its first slogan, its first classroom and its first bestseller. All three came from the institutions that took the deposits. The habit they taught was real and the households that learned it were better off. But the movement's founding purpose was the bank's balance sheet, and when a rival that served the saver better appeared, the founders lobbied it into uselessness.

This is the second shape the field's history keeps repeating: the education is genuine, the educator is the seller, and the educator's interest decides what the lesson leaves out. No school savings bank taught a child to compare what the bank paid with what the bank earned on the deposit.