Nowadays there are plenty of ways to save money or to make your money work for you, you just need to choose wisely and make the most of it. The range is wide: from deposits to investment in financial products, real estate or digital products. There are a lot of options.
We all try to save money, some of us try to invest, some succeed and some not. Every story is different. What was the situation a hundred years ago? What did Lithuanians do with their money when the Republic of Lithuania was in its infancy and the possibilities were very limited, compared to today?
Deposits and savings
When Lithuania regained its Independence in 1918, it was certainly not a rich country, its people earned low income and had no financial literacy or understanding of financial matters. The situation did not change much later, there were not many people who could make serious investments and make their money work for them. However, in the Independence period, Lithuanians were encouraged to save and earn a little bit by holding money as deposits in banks.
The basics of financial literacy were taught already at school. Youth and children press published tips for young savers and it is likely that live lectures on the subject were held as well.
As early as in 1919, the State Savings Bank was opened. It was one of the most important institutions where Lithuanian residents could accumulate their savings. The official purpose of this bank was to “accept deposits to accumulate interest and to allow residents to increase their savings”. The bank had many branches. It also organised a young savers competition where the best savers could win valuable prizes: watches, cameras, books, etc. Interestingly, the main prize was a traditional string instrument, kanklės!
Adults were also encouraged to save. Press published articles on the topic and credit institutions distributed special proclamations that promoted saving. One such proclamation of 1930 read:
“To save money is to improve the welfare of yourself and the nation as a whole. Each saved cent strengthens the economic independence foundations of the nation and each individual separately.”
There were even books published that promoted saving to become rich. Same as nowadays, people were recommended to ensure that expenses do not exceed income. To facilitate this, they were advised to write down their expenses. Debts were considered to be most detrimental (borrowing and promissory notes were very popular during the interwar period), since “those who can get by without borrowing are, in a way, already winners”. On the other hand, the harm of being unreasonably thrifty was also discussed, for example, some people used to save even on the most basic hygiene products, walking the streets “slovenly and with a bad odour”, whereas others would save in one area just to waste it in another one.
However, in the 1920s the banking sector strengthened quite significantly in Lithuania, confidence in banks grew and resident income was increasing, which resulted in bank deposits becoming one of the most important saving instruments. Of course, each year was different, and during crises, when deposits were withdrawn, the situation could become quite poor, however, the growth of depositors remained quite stable in Lithuania. For example, in 1935, more than 50 million litas were held in bank deposits (mainly by state officials and farmers). Conditions for deposits were quite favourable at the time, because commercial banks offered an annual deposit interest rate of as much as 10%.
Investment in securities
Residents were also taught the basics of investing. Newspapers wrote: “Neither money that a state official saves for holidays and keeps in his desk drawer, nor tomatoes that a housewife has prepared for winter, nor a villa or a car that are used for private affairs are considered capital... When a household’s savings enter the flow that brings them into the production process, that is when they become capital.”
Long-term savings that would aid in old age or an unexpected event were strongly promoted. Therefore, people were encouraged to purchase securities, invest in real estate and make other similar long-term investments, although, as it was already mentioned, this was not an option for many Lithuanian citizens due to limited financial resources available.
Right from the beginning of Independence, the Lithuanian government started to distribute government bonds with the aim of covering public debt that had significantly accumulated in the beginning of 1920s due to poverty, wars and other problems. Of course, the first bonds were distributed very slowly due to poverty and insolvency, therefore, various benefits and incentives were introduced to help distribute those bonds (e.g. benefits for settlers, a possibility to use securities bons to pay for other services, discounts, etc.). In the independence period, there were multiple issues of such government bonds that were meant to stimulate the economy, industry and the development of cities. With time, this safe way of investing became quite popular among residents.
Another way of investing was buying shares of joint stock companies. To enable this, the Law on Companies was passed in 1925, which set the minimal authorised share capital of joint stock companies at 100,000 litas (2 million litas for banks) and the minimal par value per share at 100 litas (later changed to 25 litas). Although the prices of shares were not high, it did not become a popular option among Lithuanian residents. This was due to low solvency of residents, the lack of information and a low number of joint stock companies (during the interwar period, only around 150 joint stock companies were in operation, along with a several dozen banks). Often, the government would buy a big part of shares of large companies and the rest were purchased by other companies or large-scale businessmen.
Interestingly, during the interwar period, the Bank of Lithuania was also a joint-stock bank and 80% of its shares were state-owned, while the remaining shares were owned by private companies and individuals. There were a couple hundred of such individuals, some of them were foreigners. Thus, it is evident that only a small number of interested persons used to purchase shares.
Some companies tried to make investment in shares more popular among their customers, which were otherwise not interested in them. For example, Maistas company, when purchasing pigs from farmers, used to make part of the payment (2.50 litas) in vouchers. After accumulating vouchers for the amount of 25 litas, one could purchase a share worth 25 litas. However, not every farmer took advantage of this opportunity, because the information on the meaning of shares was limited, there was a lack of advertising and education, therefore, only a small number of people invested in shares.
Real estate investments
During the interwar period, the construction sector was one of the largest and the most profitable in Lithuania. After World War I, a lot of buildings were destroyed, the country was depleted, the industry was weak and the cities were small, therefore, the construction of residential, industrial and public buildings was essential for this young country. This need became especially critical when Vilnius was lost and Kaunas became the temporary capital of Lithuania. Up until Lithuania’s Independence, Kaunas was just a small city in the province of the Russian Empire. However, when independence was regained, it started growing rapidly, because new settlers were coming, the industry was developed, companies were established and the main governmental institutions were transferred there.
Of course, construction works took place all over Lithuania. It is estimated that by 1930s, more than 140,000 buildings were built and around 65 million litas were invested in construction. However, Kaunas grew most rapidly. In 1918-1938, more than 10,000 new buildings were erected there. The aim was to make brick buildings more widespread throughout the country, however, the absolute majority were still made out of wood: in 1930s, brick buildings amounted to a mere 3% of all buildings even in Kaunas.
In addition to public and state buildings, private houses were also widely built, but it was an expensive investment. For example, in 1929, the average house construction cost was 6,300 litas in Lithuania and as much as 21,000 litas in Kaunas! Therefore, only the rich could invest in such construction. Often several families invested in construction jointly and lived in the constructed house together.
With the increase of buildings, rental business was quickly developing as well. Sometimes rent was paid before construction even began: tenants would pay rent for a couple of years in advance and this amount would be used by the owner to build that house. Rental prices were quite high: they could be as high as 600 litas (half of a state official’s wage) in the temporary capital’s city centre and cheaper, but still high, further from the centre.
Large-scale businessmen often rented real estate to other companies and thus made considerable profit.
