Guess Where Americans Are Plowing Their Gas Savings

Gas prices are 80 cents a gallon less than a year ago and $1.50 less than April 2014. With this amount of savings, the economy should be improving from all the extra cash in consumers' hands. You'll be surprised where much of the savings is going.

2 minute read

November 3, 2015, 6:00 AM PST

By Irvin Dawid

Gas Pump

Carolyn Franks / Shutterstock

"Here's a funny one: Americans have spent their gas savings on gas," writes Myles Udland for Business Insider. According to new figures on spending released last week by the Department of Commerce's Bureau of Economic Analysis (pdf) last week, "inflation-adjusted personal consumption expenditures on gasoline rose 4.1% over the prior year, the most in at least 15 years."

What's surprising is what Udland doesn't attribute the increase to. No mention of driving more, or switching to gas-thirsty SUVs from compact cars, though I suspect both play a role, but I'm getting ahead of myself.

Udland wasn't surprised at the increase in gasoline spending as he anticipated it in a column he wrote in September. "The last time oil prices crashed and brought down the price of gas, US consumers spent more money on gas," he wrote.

According to behavioral economist Richard Thaler, "households typically have rigid 'buckets' of spending — $80 per week on food, $100 on gas, $500 for a mortgage, and so on. Humans tend to stick to their buckets," wrote Udland.

Thaler found that "(t)he shift toward higher grades of gasoline was fourteen times greater than would be expected in a world in which money is treated as fungible."

What's more, upgrading to "premium" was not found in other 'budgets' such as particular food items. "The one exception to that tendency was more splurging on upscale gasoline." [Emphasis is Udland's.]

Udland continues in the Sept. 5 column to indicate where the gas savings have gone—primarily increased savings, as opposed to retail sales other than gasoline.

Hat tip to Loren Spiekerman.

Thursday, October 29, 2015 in Business Insider

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