If you haven’t already noticed at your last trip to the gas station, gas prices are the lowest they’ve been since the 90s– affecting everything from your stock portfolio, US unemployment, and cigarette consumption.
Here’s what happened
Gas prices are below $2 for the first time in a decade—and this has been going on for 25 days and counting. Americans across the nation are rejoicing—taking road trips, pocketing the extra spending money—smiles all around.
But wait—are we premature in our celebration? What do these falling gas prices really mean?
What it means for you
Well, for one, it means that people are driving more (the equivalent of 337 round trips from here to Pluto, in fact). And bad news, that means more traffic. The Texas A&M Travel Institute found that rush hour travelers spent an extra 42 hours on the road last year due to increased traffic. More time on the road has also has lead to an 8% uptick in motor vehicle accidents, which equates to 38,000 deaths— the largest increase in 50 years! This rise in accidents has had a financial impact on drivers; with the total cost of deaths, injuries and property damage totaling more than $400 billion last year.
There’s also been another interesting little side effect of slashed gas prices— cigarette sales are up for the first time in 9 years. Cheap gas has a disproportionate impact on cigarette sales because smokers tend to have lower incomes on average and the majority of cigarette sales (60%) take place at gas stations. Analysts have seen this increase in discretionary income (via savings at the pump) as the largest driving factor behind this spike.
On a more macro scale, a major factor that causes fluctuations in gas prices is the price of crude oil. And crude oil prices have been taking a dive lately—for reasons including depressed global demand for oil and excess supply as well as increased domestic production.
This dip in prices has also hit the oil sector hard—many of these companies are facing bankruptcies and consolidations this year, with dozens of small drillers having already filed for bankruptcy, and some of the larger operators predicted to follow in suit. The energy boom had been fueled by really expensive drilling tech that was paid for by lots of debt…. which is now becoming pretty tough to pay off. With all of these companies closing shop, about 250,000 people are now out of a job—and that number is growing every day.
And don’t think that if you’re not in the oil and gas business, you’re off the hook—this will affect your stock portfolio, too. As the price of oil and gas continues to go down, so does the stock market as a whole).
What you can do about it
• Actually save the money that you would have spent on gas— be conscious of how much you’re saving additionally and instead of letting it fall through the cracks, put that towards paying off your car, credit card, or student loans faster. Or use it to build up your emergency fund (psst… you can do that automatically through GreenShield—if your company doesn’t have an account yet, click here). Depending on how much you drive, these savings can actually make a pretty big difference in improving the overall health of your financial profile.
• Look into buying a fuel-efficient car. It sounds counterintuitive, as people are rushing to buy gas guzzling SUVs and trucks now that it’s more affordable to do so. But that means you might be able to snag hybrid and other fuel-efficient cars at a discount, which makes it a perfect time to buy. And another tip—gas prices won’t stay low forever—in fact, they’re anticipated to climb in the coming months as refineries make the switch over from winter gas to more costly summer gas—so it’ll pay off long-term for you when prices spring back up.
• And as we mentioned in our last post—if you’re seeing your 401k take a hit, don’t panic. Yes, if your entire portfolio is comprised of oil and gas, you’ll probably see the overall value of your portfolio take a plunge. However, if you’re well diversified, you should probably see your portfolio go up overall over the long-term, as the market as a whole rises.
Questions? Let me know in the comments, via email at email@example.com, or tweet at @getgreenshield.