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With more expensive gasoline, low-income American families committed 4.2% of their income to fuel in March, while some consumers resort to credit cards and “buy now, pay later” to ease their budget amid rising oil prices
American families are resorting to credit cards and “buy now, pay later” to ease the burden of gasoline, after fuel began to consume a larger share of income in March. Data from the Bank of America Institute show stronger pressure on low-income consumers, who spent 4.2% of their income on gasoline, compared to 3.9% in the previous year.
The average for families across all income brackets also rose, but at a slower pace. In March, this group allocated about 3.1% of their income to gasoline, up from 2.8% recorded in the same period last year.
Credit card becomes an option amid rising gasoline prices
The rise in prices led some consumers to seek short-term alternatives to keep their budgets functioning. These include increased use of credit cards and installment payment options known as “buy now, pay later.”
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The impact appears more intensely among families with lower disposable income. About 10% of low-income consumers spent more than 10% of their household income on gasoline in March, while this proportion was 6% among higher-income families.
David Tinsley, senior economist at the Bank of America Institute, stated that low-income families allocate a larger share of their income to gasoline because they have less room for discretionary spending. This combination makes the rise in fuel prices heavier for this group.
The pressure came amid the war with Iran, which restricted exports of oil from the Middle East. The barrel went from the US$70 range before the conflict to over US$100.
This movement raised gasoline by more than 40%. The national average tracked by AAA rose to over US$4.50 per gallon, increasing the burden of fuel on budgets.
Current hike is painful, but smaller than previous shocks
Tinsley stated that the increase in gasoline spending as a percentage of income needs to be observed with caution. He recalled that there were larger peaks after the financial crisis and also after COVID-19.
Similar price shocks pressured consumers during the 2008 financial crisis and in the recovery that began in 2011 and 2012. Prices also rose after the pandemic, when Russia invaded Ukraine in 2022.
Even without reaching those levels, the current increase represents a significant squeeze for families. The problem is mainly concentrated among those who depend more on their monthly budget and have less margin to absorb unexpected expenses.
Wages brought some relief, but unevenly across income groups. Higher-income families recorded wage growth of over 5% compared to the previous year.
Among low-income families, growth was only 1% until March. For middle-income families, wage growth was 2%, well below that observed at the top of the distribution.
Installment payments help little in the overall picture
Given this scenario, Tinsley stated that consumers still have some room to maneuver. One is to borrow more money on credit cards, as the relationship with available limits is not particularly tight at the moment.
He noted that the overall situation of consumers regarding credit limits is similar to that before the pandemic. This helps explain why credit cards appear as an option to get through the current shock.
Another option is to use “buy now, pay later” more, especially among low- and middle-income families. These options allow expenses to be spread over a few months, but do not substantially change the overall picture.
Tinsley highlighted an important limitation of this model. People who typically use “buy now, pay later” generally have less available limit on their cards.
Greater savings help contain part of the shock
A positive point in the Bank of America Institute data is that families across all income brackets have more money saved than before the pandemic. Tinsley stated that these families have about 10% more savings deposits in their accounts.
The improvement was largely attributed to income tax refunds. He cited that the One Big Beautiful program involved consumer stimulus, much of which was received through these refunds this year.
Refunds are about 10% higher, and some of that money has been saved. This reserve can help families cope with the fuel shock for some time.
Still, credit cards remain a tool used to offset the burden of gasoline on the budget. For low and middle-income consumers, the challenge continues to be balancing fuel, credit, installments, and monthly income.
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