94 MULTIPLE PURPOSE RIVER DEVELOPMENT 



Survey of Consumer Finances provides relevant data on this 

 question; they are summarized in Table 5. It shows, for each 

 income class, what percentage of spending units have a significant 

 amount of short-term consumer debt and mortgages. 



TABLE 5. Asset-Debt Position of Consumer 



Income class 



;0 to $3,000 $3,000 to $5,000 Over $5,000 



(per cent) (per cent) (per cent) 



Owed more than $100 of con- 

 sumer debt 33 52 52 



Owed mortgages only 5 8 11 



Owed neither kind of debt ... 62 40 37 



Source: 1956 Survey of Consumer Finances, "Consumer Indebtedness," Federal 

 Reserve Bulletin, July 1956, p. 702. 



To derive the interest rates on which consumers make their 

 marginal borrowing-saving decisions, we must estimate the rate of 

 return earned on their assets and the rates paid on their debts. Let 

 us assume that the interest paid on the assets held by debt-free 

 households is 3 per cent, a rate typical of the savings accounts and 

 U. S. government bonds into which most households in the lower- 

 income brackets put their savings. To take account of the higher 

 returns earned on common stock by 15 per cent of the class with 

 incomes above $5,000,^° we increase this rate to 3.75 per cent for 

 the class with no debts. 



A rate of 5 per cent is applied to mortgage loans. This rate is 

 somewhat above that charged on loans guaranteed by the Federal 

 Housing Administration or the Veterans Administration, but corre- 

 sponds to rates on conventional first mortgages and allows for the 

 considerably higher rates which prevail on second mortgages." 



As for interest on short-term consumer credit, rates vary widely, 

 from less than 6 per cent on some personal bank loans (and per 



'° 1955 Survey of Consumer Finances, "The Financial Position of Consumers," 

 Federal Resewe Bulletin, June 1955, p. 621. 



"This rate corresponds to the fmdings of Morton for 1947. See J. E. Morton, 

 Urban Mortgage Lending Experience, National Bureau of Economic Research 

 (Princeton: Princeton University Press, 1956), pp. 80-81. 



