American households are facing increased financial strain due to rising gas prices, which have prompted many consumers, particularly those with lower incomes, to rely on credit to manage their expenses. A report from the Bank of America Institute highlights that lower-income households are now allocating 4.2% of their incomes to fuel, up from 3.9% a year prior, marking the highest percentage for March since 2022. In contrast, the average American household across all income levels spent about 3.1% of their income on gas in March, an increase from 2.8% the previous year.
The surge in gas prices can be attributed to geopolitical tensions, specifically the ongoing conflict in Iran, which has constrained oil shipments and caused prices to spike over 40%. As a result, about 10% of lower-income consumers reported spending more than 10% of their income on gas, compared to only 6% of higher-income households. David Tinsley, a senior economist at the Bank of America Institute, noted that lower-income households are disproportionately affected due to their limited discretionary spending capacity.
While consumers are feeling the pinch, some relief is being provided by wage growth, which has been stronger for higher-income households. Lower- and middle-income households, however, have experienced minimal wage increases of 1% and 2%, respectively. To cope with rising costs, many consumers are turning to credit cards and buy now, pay later options, although these solutions may only offer temporary relief.
In a more positive light, households across income levels have reportedly increased their savings, largely due to higher tax refunds, which are approximately 10% greater than the previous year. This increase in savings may help consumers navigate the current economic challenges posed by elevated gas prices.