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October 18, 2013

Historical Echoes: Passbooks and Hand Grenades

Megan Cohen

The Postal Savings System began in 1911 as a means
for communities without banks to allow their citizens access to basic banking
services. The system was seen as a means for banking without directly competing
with banks. The height of utilization was during the period after the Great
Depression through the end of World War II, when traditional banks
reestablished themselves as secure sources of financial services.

One facet of this system involved a program called
School Savings Banks. The program was dedicated to encouraging thrift and
increasing savings among U.S. schoolchildren. School Savings Banks programs proliferated
during the early 1900s
, allowing children to learn the
basics of banking: saving, earning interest, and monitoring their balances. In
the post-World War I years, promotion of the School Savings Banks program and the
Savings Stamps
program even led to a program that
distributed hand grenades that had been converted into children’s
savings banks
. The children were loaned these hand
grenade banks during their vacations in order to contribute to the War Savings
Stamps effort. If a child saved enough money to buy a stamp, he or she was
allowed to keep the grenade bank.

The School Savings Banks program continued to grow
through the Great Depression, when an inevitable slowdown in banking activity
occurred. However, use of the program and related programs picked up during
World War II in combination with efforts
to save money for war bonds
. After World War II, promotion of
savings bonds continued along with the School Savings Banks program until the
1950s. The success of these programs waned as the decades wore on, coinciding with
diminishing interest in savings bonds. Yet children’s banking programs as well
as savings bond programs continue to this day, albeit on a less grand scale.

Check out some educational
material on economics, banking, and personal finance

provided by the Federal Reserve System. We promise—no hand grenades!

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.


Megan Cohen is a research librarian in the Federal Reserve Bank of New York’s Research and Statistics Group.


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I remember the school savings program back in the early to mid-1960s. I vaguely remember it used punch cards in brown envelopes. (I didn’t participate. I had my own passbook savings account.) Savings accounts paid 4% back then. No wonder people saved more. Of course, that 4% was set by law for ALL savings banks, and, then, as now, the account was FDIC insured. The problem is that saving just doesn’t pay much. Income growth has been zero for the past 30 years, so there are few investment opportunities. In general, ROI has been falling for decades. I’m guess that if we raise the minimum wage enough and pump up infrastructure spending, we could probably get incomes growing again and make saving worthwhile, as well as more possible for more people.

It’s good to read about the history of children’s savings and bonds. Maybe people were better at saving back in the early 20th century!

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