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Can High Gas Prices Increase Savings?

May 30, 2008

Not anytime soon. But if people believe these prices will last for a long time they may indeed increase our savings. I believe that part of the reason many Americans have reckless spending habits can be tied to a lack of free time, a related increase in stress, and the use of money in an attempt to ameliorate this condition. Some social critics, such as Juliet Shor, have also made this observation, laying the blame at the feet of greedy corporations. I’ve never found that arguement persuasive.

I think the more interesting research that speaks to this issue comes out of the interface between economics and psychology. It is in that research we find stark differences between what people believe will make them happy and what actually does make them happy. One, of many, examples of this difference has become known as the The Commuting Paradox. Here’s the basic idea. People believe that big houses will make them happy, so they go out to the suburbs where the price per square foot of house is lower and they buy a larger house. The big house does not make them happy. But now they have a long commute to work. Long commutes create stress, reduce the amount of time you have to spend with friends and family and in so doing reduce overall happiness.

And I believe the added stress and decreased happiness associated with the long-commute lifestyle is a progenitur of overspending. Yes, the house (at least on a per square foot basis) was cheaper. But the gas is more expensive, eating out is more expensive (who has time to cook), and many of the services we buy to help us manage our time can be very expensive. Those who have this lifestyle start with a serious financial disadvantage to those who walk to their jobs or have a very short commute. And not only are they poorer for it, they aren’t as happy as well.

What if gas prices went up to $5 a gallon and remained there, or even increased, over subsequent years? Over time, people would begin to make different choices about where they lived, choosing to live closer to work (often a city) and to forgoing the 30 mile commute. The housing stock, along with local zoning regulations that govern housing density, would gradually adjust to meet this new demand. A shorter commute, in addition to increasing personal happiness, would drive down stress-induced spending.

So, keep on going gas prices! You are a savior in disguise.

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3 comments

  1. I agree that a long commute reduces overall happiness. I once had an hour-long commute each way to work, and I wasn’t very happy with my life. However, I’m not sure that spending more time at work made me spend more money. I personally tend to go shopping more often, and therefore, spend more money, when I have more free time. I actually ended up saving more money during the time when I had that horrible commute.


  2. We now have a small house close enough to work to bicycle. Every once and a while I miss the 1,500 square feet we gave up to move closer to our jobs but then I remember the time we spent commuting and it makes me feel better.


  3. (Very cool that you linked to the original research. So many bloggers do not know or link their sources.)

    Anyway, I was surprised to see the big drop between 15-20 minutes and 30 minutes, as shown on Page 32. Since getting an FM transmitter for podcasts and audiobooks, I like my uninterruptible 30 minutes.

    But it is interesting that as a society we could end up getting happier against our will, in many ways.



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