Skip to main content

Our battle with gas prices has been among the most eye-catching topics since the cost skyrocketed in the first half of 2022, ultimately topping $5.02 per gallon on June 18. In some parts of the country, consumers even saw prices exceed $6. 

Costs managed to decline in the course of the second half of the year, however, even dipping to a current national average of $3.40. That said, much damage has been done. The commodity remains a core economic ingredient that still plagues American households making difficult financial health decisions in much of the country, especially when taking into account the already-expensive holiday season.

Gasoline is an economic commodity that works by the consumer-unfriendly “feather theory”: the price spikes quickly, and then slowly, gradually, drops back to previous levels. The price stays higher, longer, and remains vulnerable to further increases when an unfavorable event occurs. Such events that bump prices up can resemble, for example, the perfect storm of the present moment; OPEC’s brief cuts to its output, the short-term U.S. refinery shutdowns in October, and the ongoing Russia-Ukraine war. 

Some experts also blame price gouging by oil companies. “For far too long, Big Oil’s price gouging has gone unchallenged, allowing the industry to artificially inflate prices and give billions of dollars to their already wealthy shareholders – all at the expense of hard-working consumers,” says Jordan Schreiber, director of energy and development at Accountable.US.

Financially-stressed families remain understandably frustrated by what they have to deal with at the pump, and at this point don’t really care for the reason. As gas reached all-time heights this year, how have those challenged American households had to adjust their purchase patterns to account for added costs they had nothing to do with causing?

How gas prices have forced consumers to adjust their financial lives

According to analysis by the Financial Health Network’s Pulse Points Report published December 1, the national average for a gallon of gas increased over 40 percent from March to July 2022. Economic theory posits that consumers will respond to price increases in at least one fundamental way: As gas prices rise, consumers will spend less on gas as a function of their preferences and budget constraints. But it’s also possible to respond in other ways as well.

One example could represent a cognitive bias like what FHN calls the “pain of paying” that results from loss aversion. This can influence drivers to act as if dollars spent on gas above a specific threshold are more expensive than dollars spent below that threshold. Consumers can also engage in a method of “mental accounting” that budgets a mild amount to dedicate at the pump on a stop-by-stop basis, regardless of their budgetary limitations or wish to shell out for gas.

It is entirely plausible that commuters will use these kinds of budgetary “strategies” if they face financial constraints (effectively the inability to finish a purchase transaction above a specific dollar amount). Those not financially sound or exhibit lower-income limitations are obviously more likely to deal with these challenges, which can certainly rear their ugly heads when it comes to negative cash flow, strain to pay bills on time, inadequate short-term savings, and bad credit. If those who are financially stressed react to rising gas prices by cutting their purchases into even more frequent and smaller transactions, liquidity limitations could be playing a part in how they manage their fuel consumption.

Theoretically, financially-challenged Americans could alternate away from their cars and focus more on public transportation like busing or, if possible, walking or biking. The reality, however, is not so clear. The fact is most residents live in communities where such options aren’t available or so difficult or inconvenient to use the only choice is to use a car. Many families on low-incomes plainly cannot afford to live in a community where walkability and public transportation are reliable or even available. 

Even with lower gas prices, inflation in this area is more than likely to exacerbate the challenge – shrinking household budgets for daily or monthly financial requirements like rent, food, or insurance, among other items. Such data places a spotlight on low-income families who rent rather than own and remain dependent on cars will be especially affected by inflationary conditions.

Increased rents could very well lead to a higher likelihood of eviction. In the same way, rising gas prices could lead to reduced or pricier access to employment or even interview opportunities, recreation, education, and other chances for upward mobility. It’s a snowball effect that can inhibit millions of Americans, especially in banking deserts where the ability to take charge of one’s financial freedom and improved literacy is exceedingly difficult. 

Gas Prices
Photo: Stan | Pexels

Strategies to ease price burdens for families with low-incomes 

Opportunity is always possible for local, state, and federal policymakers to create workable solutions that will assist low-income families in the short-term while fighting the conditions that expose those communities to inflation- and economic challenges in the long-term. 

In that effort, officials have proposed such short-term ideas as pausing or suspending federal and state gas taxes. Unfortunately, that action was deemed unworkable due to the fact such taxes pay for roadway maintenance. Besides, it is believed suspending them isn’t likely to reduce gas prices to any measurable extent, anyway. 

Even the possibility of such a strategy worked in reducing gas prices, it would only incentivize more driving, therefore contributing to even more carbon release and associated greenhouse gasses, not to mention increased traffic congestion leading to more gas used and more gas money spent for low-income commuters who can barely afford the amount they’re paying for right now. 

Instead of all that, local, state, and federal officials have the opportunity to consider the following solutions proposed by the Urban Institute, a nonprofit research organization dedicated to advancing upward mobility and equity:

  • Continue efforts pinpoint mechanisms to assist renters stay in place by enacting housing rules to mitigate evictions. Neighborhoods, greater communities, and states could target unspent federal fiscal recovery funds and emergency rental assistance moneys to keep rental tenants in their homes.
  • Lowering local mass transit fares, increasing bus service while investing in street enhancements for transit and biking that provide real, practical alternatives to driving. This action ensures more commuters don’t have to depend on their individual cars to get around while saving a ton of money on gas.
  • Expand substantially the federal Housing Choice Voucher Program. This subsidy for low-income renters has the chance to protect individuals and families already living in apartments from steep and unsustainable rent increases. 

These relevant, practical suggestions could result in the following:

  • The creation of new tools to encourage rent stabilization and avert displacement due to large rent increases. These tools can then be used to promote new housing construction rather than cutting off the supply of new homes. 
  • The redesign of local zoning codes to encourage more housing construction to take some weight off demand for the limited supply. This has the opportunity to reduce sudden increases in housing costs as wages increase. 
  • The investment in new transit options, such as improved bus or rail service, by leveraging available funds from the recently-passed American Infrastructure Act. Such construction makes consumer access possible for any number of daily necessities, especially if those needs are not in the vicinity of the consumer’s home location in a banking or food desert. 
  • Plan and coordinate for land use and transportation together to ensure neighborhoods, greater communities, and municipalities don’t force commuters to drive for every necessity while giving people easy-to-use, comfortable, and safe walking and cycling options. 

As a whole, these alternative strategies for mitigating the effects of rising gas prices could help fight the financially unhealthy effects inflation has caused in 2022 and into the future. Rolled out carefully and deliberately, they could be particularly serviceable in drawing attention to the challenges facing low-income consumers who are most in need of such measures as to achieve upward mobility and better financial inclusion and health.