In the last year-plus, consumers have likely seen the price for a gallon of gas decline sharply in their areas, and been thankful that they're not paying through the nose every time they go to fill their tanks. And while that has probably granted them hundreds of dollars' worth of savings in the last several months, the fact is that people aren't really doing much to put that money into savings.
Indeed, since the mid-point of last year, the average price of a gallon of gas has fallen by $1.50 – a decline of 45 percent – meaning that the average household will end up spending $700 less on gas over the course of 2015, according to a report from JPMorgan Chase and Co. However, when it comes to what they're doing with that money, about 80 percent is just being spent on other things instead, rather than putting it into savings.
The where and who of the savings and spending
A rather large portion of that freed-up money (close to 20 percent) was spent at restaurants, the report said. However, groceries – at least a better use of money from a value perspective – finished second on the list ahead of entertainment and retail.
Meanwhile, it seems that the people most often enjoying the savings tended to be more significant as far as younger consumers, and those with lower incomes, were concerned, the report said. For those 18 to 29, they were spending 3.4 percent of their income on gas, and those with lower incomes were spending 5.6 percent of that money at the pump as well. Therefore, the 45 percent decline in prices gives those people a lot more buying power.
What's the takeaway?
Right now, it remains unclear just how gas prices are going to move in the future, but it's entirely possible that they're going to remain in this general neighborhood for some time to come, the report said. If so, that's likely to have a significant, positive long-term impact on consumer finances in general.
"This boost to consumers spending could be here to stay and even strengthen with time if gas prices remain low or continue to decrease as predicted," the authors of the report wrote. "On the other hand, a substantial increase in gas prices might proportionately dampen consumer spend."
It's a perfectly good idea, from a financial standpoint, for consumers to spend the savings they enjoy on some things, as long as they're in service of improving a person's overall financial situation. For instance, using it to reduce outstanding credit card or student loan balances is usually a great idea that has long-term positive impacts, rather than using it to buy a new pair of shoes or TV. It might also be wise to simply put that money into savings each month, because doing so will likely have a significant positive impact on their ability to cover emergency expenses when and if they arrive.