Tips for Coping with Record High Gas Prices
Updated: Oct 27, 2022
Believe it or not, these aren’t the highest relative gas prices in U.S. history. Behavioral finance explains why.
Changing your driving habits and using gas saver apps and certain credit cards can save you plenty of money at the pump.
Don’t use lower octane just to save money. Doing so may come back to haunt you.
Driving by my neighborhood Costco the other day I could not believe how many Lexuses, Mercedes, and Cadillacs I saw waiting in the long line for gas. Everyone likes a bargain, including luxury car owners. And they’re willing to wait an hour or longer to fill up their tank because they don’t want to feel like they’re getting ripped off.
While we’ve seen a little relief at the pump in recent weeks, prices can quickly shoot back up because of sanctions against Russia set to be imposed in early October. And while these record-high gas prices could become a hot-button issue in the mid-term elections in November, they’re not as bad as they seem.
Most of you reading this post have the resources to absorb an extra $20 or $30 each time you fill up. Adjusted for today’s dollars, gas prices during the Great Recession were closer to $5.50 per gallon and at an even larger portion of household budgets. Remember, we’re coming off a period of extremely low $2 per gallon prices during the pandemic, when prices were a dollar or two higher before COVID (more on that in a minute).
It turns out, we’re suffering from many of the same behavioral finance biases that cloud our investment decisions.
Recency bias is the tendency to place too much emphasis on experiences that are freshest in your memory—even if they are not the most relevant or reliable. Recency bias causes investors to think a current stock market downturn or rally will extend into the future. Same goes for gas prices. Sure, prices are historically high today, but that doesn’t mean they’ll never come down again if we enter a recession as many expect, or it more refineries come back online, or if the Russia Ukraine crisis ends. (Here's an in-depth review of recency bias, by Bob Dunn)
Anchoring is a behavioral finance phenomenon in which we have an irrational bias towards an arbitrary benchmark figure such as a 600 point drop in the Dow. That sounds like a huge selloff (and media headlines love it), but in percentage terms it’s less than 2%. With the country on lockdown in early 2020 and 2021 gas prices averaged a little more than $2 per gallon after hovering over $3 per gallon before the pandemic and close to $4 per gallon in the early- to mid-2010s. Again, $5 per gallon gas is the highest number we’ve ever seen at the pump, but in terms of today’s dollars the $4-plus prices we saw during the Great Recession of 2008-2009 we’re even higher. If that doesn’t make you feel better, ask your friends in Europe how much they’re paying for gas. It’s about double. So, don’t expect any sympathy from them.
Strategies For Saving And Coping
That being said, you can still save plenty of money on gasoline by obtaining credit cards that provide higher points when used gas stations, or cards that give you discounts on gas you can also use the GasBuddy app or website to find the lowest price gas station in your area. Just be sure to check your privacy settings carefully, especially on the app.
You can also change your driving habits to become more fuel efficient. For instance, keeping your tires inflated to the proper pressure improves handling and mileage, as will driving closer to the speed limit.
The Energy Saving Trust says that the most efficient speed you can travel in a car in terms of achieving the best fuel economy is 55 to 65 mph. Any faster, and the fuel efficiency decreases rapidly. For example, driving at 85mph uses 40% more fuel than at 70 mph. And research shows speeding doesn’t really save you much time.
You can also try to link more of your errands together, take your bike for short trips and even go back to working from home more if you're still in the workforce.
If you’re convinced that the cost of having an internal combustion engine is more trouble than it’s worth, now might be the time to switch to an electric vehicle. The technology, performance and cruising range gets better all the time and for many models, you can qualify for up to $7,500 in federal tax credits if purchased (not leased). Many states are also offering EV tax credits and think about how much you’re doing to save the environment. (Are you considering an electric car? Read Dan's article for tips to consider.)
Don’t Use “Cheaper” Gas
One thing you don't want to do is use lower octane in your tank than your car maker recommends. I know it’s tempting to use cheaper, lower-grade fuel than your car is rated for, but this can come back to haunt you “down the road.” First, your fuel efficiency will deteriorate (so you’re not really saving money) and then there’s the risk of damaging your engine which could void your warranty.
If you or someone close to you is considering a switch to electronic vehicles or is concerned about their household budget, please don’t hesitate to reach out. We’re very experienced in this area and happy to help.
DAN SATZ MS, CFP® is a Wealth Manager at Novi Wealth