For the highest earners, the pain at the pump is more psychological than anything else. But for low-income Americans, high gas prices can trigger a cycle of hardship.
Driving the news: The daily national average price in the United States for a gallon of regular fuel climbed to $4.99 on Thursday morning – one cent below the symbolic $5 threshold, according to AAA.
The big picture: Those at the top spent the equivalent of about 2% of their income on gasoline in 2019. This is the most recent year for which the Bureau of Labor Statistics has unskewed survey data. by strange pandemic behavior.
- Those at the bottom of the income scale spent 8% of their after-tax income on gasoline in 2019. (Although many people living in car-free urban areas are spared this.)
- In 2008, when gasoline prices hit an all-time high (adjusted for inflation), this group spent almost 12%.
To note: This data looks at gas expenses as a percentage of income. A more common practice is to divide the figures as a percentage of overall household expenditure.
- It looks different this way: The bottom 20% of earners spent 3.7% of their spending on gasoline compared to 2.7% for the highest earners, per BLS.
- But, we estimate that the income percentages hit home. When you live paycheck to paycheck and have to drive, your income is gobbled up.
Meanwhile, more recent data, from Bank of America, shows that Americans who earn less than $50,000 a year currently spend almost 10% of their credit card bills on gas, compared to 6% for households earning more than $125,000 dollars.
Where is it : The saving grace now would be that the labor market is much healthier than it was in 2008. On the other hand, for those who have to drive to work, rising gas prices are basically a pay cut.
- “It can create a cascade of other difficulties,” said former Federal Reserve economist Claudia Sahm. If more of your money is going to gasoline, you have to make painful choices about where that money comes from.
- This comes at a time when food prices are rising, which is also weighing on low-income households.
The bottom line: Gas is “the price everyone sees,” Sahm said. “I mean people hate it.”
Go further: 5 Best Ways to Save on High Gas Prices