American household budgets are under pressure higher gas prices and new data shows consumers are turning to credit to cushion the blow of high fuel costs.
A report from Bank of America Institute found that low-income households saw the share of their income spent on gasoline increase to 4.2%, up from 3.9% a year ago and the highest level for the month of March since 2022, based on internal Bank of America customer deposit data that was aggregated and anonymized. In contrast, the average household across all income categories spent about 3.1% of their income on gasoline in March, up from 2.8% over the same period last year.
Additionally, about 10% of low-income consumers spent more than 10% of their household income in March on gas, as prices surged amid the war in Iran that limited oil shipments from the Middle East, compared with just 6% of higher-income households.
“Low-income households spend a greater share of their income on gasoline simply because they have less room for discretionary spending than middle- and upper-income households,” David Tinsley, senior economist at the Bank of America Institute, told FOX Business. “These two things together mean that the rise in gas prices we’ve seen is hitting low-income households the most.”
GAS PRICES EXCEED $4.50 NATIONWIDE DUE TO TENSIONS IN IRAN
The Bank of America Institute found that American households, particularly those with lower incomes, are seeing their budgets squeezed by rising gasoline prices. (Mr. Scott Brauer/Bloomberg via Getty Images)
THE war in Iran caused the price of oil to rise above $100 per barrel, whereas it was trading around $70 before the start of the conflict. This caused gas prices to rise more than 40 percent, with AAA’s national average at more than $4.50 per gallon.
Similar gas shocks were strained consumer budgets as the economy faced the financial crisis in 2008 and began its recovery in 2011 and 2012. It also grew following the COVID pandemic when Russia invaded Ukraine in 2022.
“The current increase in gasoline’s share of revenue needs to be put into perspective. There were also much larger increases and higher peaks in terms of gasoline’s share of revenue and spending right after the financial crisis and also right after COVID,” Tinsley said. “So this is obviously a painful increase for people, no doubt, but it’s not as significant as these other incidents.”
Soaring gas prices are hitting low-income households hardest, Fed study finds
The war in Iran limited the flow of oil from the Middle East, causing a surge in gas prices that impacted consumers. (Giuseppe Cacace/AFP via Getty Images)
American consumers see some relief thanks to higher salariesalthough the magnitude of these gains varies across income groups and some consumers are turning to credit and buy now, pay later to manage their finances amid a crisis.
Tinsley said that while high-income households are seeing strong wage growth, up more than 5% year-over-year, low- and middle-income households are not seeing those gains. He noted that among low-income households, wage growth was only 1% through March, while it was 2% for middle-income households.
“There are a few other things, wiggle room, that people have,” Tinsley said. “They could borrow more from their credit cardand when we look at where people are in terms of their credit card limits, we know that they’re not particularly stretched right now relative to their credit card limits. The overall situation is roughly where it was just before the pandemic. »
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“The other thing they could do is buy now, pay later,” he said, adding that more and more low- and middle-income households are using these options to manage their budget.
“The downside is that ultimately, buy now, pay later just smooths out your spending over a few months, so it won’t make a big difference overall,” Tinsley said. “It turns out that people who tend to buy now and pay later tend to have less borrowing space on their credit cards.”
Larger tax refunds have boosted savings among Americans across all income categories, Tinsley said. (Getty Images)
Tinsley said one positive aspect of the Bank of America Institute data is that households, regardless of income level, have more savings in the bank than before the crisis. Covid-19 pandemic.
“These households have around 10% higher savings deposits in their accounts. The reason is largely tax refundsso obviously the One Big Beautiful involved a lot of stimulus for consumers, a lot of which translated into refunds this year,” he said.
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“Reimbursements are going on, roughly, about 10% more and even though people are spending some of that, they’re also putting some of it in the bank, which can kind of help them get through some of this gas shock for a while,” Tinsley added.
