JPMorgan Study

A recent JPMorgan Study revealed that Americans have not been particularly careful with the money they have saved since the major reduction in gas prices. Why? Well, it’s really an interesting phenomenon; something behavioral experts refer to as “mental accounting”. If the average American bought the same number of gallons of the same grade of fuel in the winter of 2014 as they did during the winter of 2013 when fuel prices were higher, they would have saved about $41 per month. Yet when everything was all said and done, the average consumer only saved about $22.

 

What happened?

 

First, Americans are choosing to drive more, because they think they can afford to. Second, many people are opting for SUVs and larger sedans that are much less fuel-efficient than the econoboxes they used to drive. Third, many people are upgrading to a higher-octane fuel, even though it can sometimes be a complete waste of money for the consumer.

 

More About the JP Morgan Study

As the JP Morgan study shows, when gas prices were at their highest, the average American’s monthly spend on gas was about $136. Now that the prices are lower, they are still spending $114. The end result is this: even though the prices have come down by about a third, the actual spending on fuel has declined by only about 16 percent. Many of these consumer decisions are made due to the “mental accounting” we mentioned earlier.

 

What does that term mean? If the consumer has become used to spending the $136 per month and they suddenly find themselves with a full third of that in their pockets, it’s easy to justify spending some of it, even if it’s for something that could be considered frivolous … hence, the term “mental accounting”.

 

A similar phenomenon happened in 2008, when gas prices came down markedly during the economic collapse … and it’s happening again here in 2015. And with prices at the pump projected to remain low for the foreseeable future, we can expect more of the same going forward.

 

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