Consumers who cry foul over gas prices might actually be exaggerating the effect that higher gas costs have on their household budgets. In many cases, the actual figures tell a different story. Here are three common gas-price myths, debunked.
Gas Myth No. 1: Rising gas prices are forcing families into bankruptcy. To see the holes in this assertion, let's look at a typical two-car household, its driving habits and its fuel costs.
Many households have two cars: an around-town family hauler and a commuter car for getting back and forth to work. The around-town vehicle is usually a large SUV or a minivan used for transporting kids and recreational equipment to school and athletic practices or other activities. Let's say this vehicle averages 15 mpg and the family drives about 20 miles a day, which adds up to about 7,300 miles a year.
At $3 per gallon for gas, the yearly fuel bill for the vehicle would be about $1,460. At $4 per gallon gas, the fuel bill rises to about $1,950 annually. That is an increase of $490 a year, or $9.40 more per week.
Now let's look at the commuter car. This vehicle is driven 60 miles a day, five days a week for 50 weeks. That's a total of 15,000 miles per year. Luckily, this car averages 25 mpg, so at $3 per gallon, the yearly fuel bill is a bit lower: $1,800. With gas rising to $4 per gallon, that figure climbs to $2,400, an increase of $600 a year or $11.50 more per week.
To summarize, this family was paying $3,260 a year at $3 per gallon of gas. At $4 per gallon they would be paying $4,350. The jump from $3 to $4 per gallon has increased their yearly fuel bill by $1,090. On a weekly basis, that's $21 more for the entire household.
If this family earns $50,000 a year, their annual fuel costs went from being about 7 percent of their gross income to being about 9 percent of their gross income. For a family making $75,000 a year, the percent is lower. Gasoline costs went from being around 4 percent of their gross income to around 6 percent.
Also, keep in mind that this example assumes that the commuter car is being driven 15,000 miles a year and the family car is driven 7,300 miles a year. That's a fairly high number of miles. And the SUV in this example gets only 15 mpg, which is pretty low. If anything, this example overestimates the impact of gas prices.
In short, if this family were to go bankrupt, steep gas prices would not be the only reason. The household was likely close to the edge of solvency already. This family might also have fallen into another common trap: It bought cars during a time of low gas prices, not fully taking into account that fuel prices have fluctuated wildly in recent years.
Gas Myth No. 2: Trading in an SUV for a Prius will save a lot of money. Because they're angry about gas price increases, many people think of dumping their SUV for a Toyota Prius or other hybrid. They swing from one extreme to the other.
This knee-jerk reaction would be a huge financial misstep. First of all, when gas prices are high, it is the worst possible time to trade in or sell an SUV — and it's also a bad time to buy a hybrid. While the SUV might only bring $10,000 as a trade-in, the Prius will typically cost about $25,000, meaning that this vehicle change has cost $15,000. How long will it take for the savings in gas costs to pay for this $15,000 balance? It depends on how many miles you drive. But it could easily take eight years or more before you actually begin saving money. If you want to run the numbers with your own vehicles, use our Gas-Guzzler Trade-in Calculator.
In short, switching vehicles is almost always expensive, particularly when you factor in the sales taxes and registration fees, which are significant in many states. However, the less you spend to make the transition from a gas-guzzler to a fuel-sipper, the faster you begin saving money.
Gas Myth No. 3: If 25 mpg is good, 50 mpg is twice as good. In recent years, consumers have focused on the miles per gallon (mpg) that a vehicle gets. While this is a handy way to compare cars, it doesn't show a clear picture of what is really important: how much fuel you may save.
To understand this concept better, consider these questions: Is it better to trade a car that gets 25 mpg for one that gets 50 mpg? Or should you trade a car that gets 12.5 mpg for one that gets 25 mpg?
The answer isn't what you might think. It is far better to go from 12.5 mpg to 25 mpg. The reason is clear when you look at the cars in terms of how many gallons it takes to drive 100 miles. So if you drove the three cars we mentioned here, the results would be as follows:
12.5 mpg = 8 gallons to drive 100 miles
25 mpg = 4 gallons to drive 100 miles
50 mpg = 2 gallons to drive 100 miles
In other words, the savings when going from 12.5 to 25 mpg is 4 gallons. When going from 25 to 50 mpg, you'd only save 2 gallons of gas. If a family owns two vehicles, it should trade the low-mpg vehicle for one that gets even average fuel economy. Put another way: Don't swap the 25-mpg car for a Prius.
Another way of looking at this is that vehicles whose average fuel economy is in the low teens are poor bets and could be worth a swap for one with a higher mpg. Any vehicle that gets an average of 25 mpg is pretty good, and replacing it isn't usually beneficial. This article has more details about the gallons-per-mile method of measuring fuel economy.
Gas Myth No. 4: Buying gas in the early morning will save you lots of money. It's true that colder gasoline is denser and that it expands as its temperature rises. So in theory, you would get more energy-dense gasoline in the morning than you would in the afternoon. But in reality, this isn't what happens. Underground fuel tanks are well insulated and the temperatures in them don't vary much, according to experts, including Dan Edmunds, director of vehicle testing for Edmunds.com. Whatever temperature the gasoline was when it was delivered from the refinery is the temperature at which it's going to remain, no matter what time of day you're pumping.
So someone who gets up at dawn to fill up early won't save even one simple penny. And if he's racing to the gas station to beat out the other early birds, his fuel costs will be 35 percent higher than the guy who drives calmly, according to Edmunds testing. People who really want to save money on gas should look to change their driving style instead of counting on the cool-fuel theory.
The Antidote to Gas-Price Myths
Instead of buying into myths about gas prices, try these real-world tips that could help your family manage its fuel costs.
Know your auto-related expenses: If you want to cut your fuel bill, you need to know your current fuel economy. Then you can work to improve fuel economy with your existing cars. Keep track of auto-related expenses for at least a month before you consider making drastic changes such as trading a low-mpg car for a more fuel-efficient model.
Look at the big picture, not just the price at the pump: Any time you change vehicles, you will be spending a lot of money on taxes and fees. For example, sales tax is above 8 percent in 19 U.S. states. This means that buying a $20,000 car will cost at least $1,600 just in sales tax. That will pay for 400 gallons of gas (at $4 per gallon) that could take you 8,000 miles (based on 20 mpg). If you're tempted to switch vehicles, run the numbers first through the Gas-Guzzler Trade-in Calculator.
When gas prices seem out of control, learn to control the way you use your vehicle: People can't control gas prices and that makes many of them panicky. But you can do more than you think to control the way you drive, how far you drive and how often you drive. Some people have become more informed about rising oil prices so they can save money on gas.
Changes caused by high gas prices aren't all bad: Many families that have made changes to their lifestyles to cut down on the gas spending have found some unexpected benefits. One mother decided to walk to swimming practice with her children and enjoyed the extra opportunity to bond with them. Other people have taken to walking or riding bikes and have lost weight as a result.
Although gas prices rise and fall, the long-term trend is definitely upward. Understanding fuel prices and how to manage rising costs will become increasingly important. If you begin to think analytically about these expenses now, you will be better prepared to cope with an uncertain future.