Lower gas prices have allowed Americans to put money back in their wallets…and that’s exactly where that money is staying.
The Wall Street Journal reports that despite saving about $60 a month from lower gas prices, American consumers are not putting their savings toward discretionary items like travel, home renovations or electronics. Instead, people are more often putting the money aside for a rainy day or using it to pay down debt.
That more Americans are saving their bounty at the pump comes as a surprise because the personal savings rate, after rising during and after the recession, has declined steadily over the past two years.
“We haven’t seen the extra savings from lower gas prices translate into additional discretionary consumer spending,” said Ajay Banga, chief executive of MasterCard.
Average gas prices nationwide on Friday reached $2.05 a gallon, down nearly 45 percent since June, when the average price was $3.68 a gallon, according to AAA auto club, translating to an average savings of about $60 a month for a consumer.
A Visa survey finds consumers are hanging onto roughly half their gas savings, the Journal says. Another 25 percent is being used to reduce debt, while the rest is being spent on groceries, clothing, and fast food.
“Since the recession, you have a much more cautious consumer,” Wayne Best, chief economist at Visa, told the Journal.
Economists say it’s not so unusual for people to stash initial savings. But if crude oil prices were to stay at $50 a barrel this year, that would translate to savings of roughly $1,325 per household on gas over the coming year.
As consumers feel more confident the lower prices “are permanent, they’re more likely to spend it,” said Lewis Alexander, chief U.S. economist with Nomura Securities, though so far, “the initial reaction has been to save it.”
Banga says it may take two or three more months of low prices at the pumps before consumers feel comfortable enough to spend their savings elsewhere.