Millennials among hardest hit by rising gas prices

By MICHAEL HOLTZ | March 26, 2012

From January to June 2012, I reported for Political Fiber, a news website founded by one of my college journalism professors and funded by the Knight Foundation. Our mission was to cover relevant state and national news for a college-age audience from our newsroom at the University of Kansas. The site shut down in 2013, which is why I posted this story here. 

Louisa Karnaukh drives 38 miles from Overland Park to Lawrence three to five days a week to attend classes at the University of Kansas. Last summer, a tank of gas cost her $30. She now spends about $40 to fill up once or twice a week — which can consume 20 to 30 percent of her income.

Karnaukh, 21, takes the commuter bus between Johnson County and Lawrence when she can, but most days she doesn’t have time because of her busy work schedule at a local pizzeria. Driving is nearly twice as fast.

Although the recent spike in gas prices doesn’t surprise Karnaukh — in the past month, the national average for a gallon of regular gas has jumped from $3.65 to $3.89 — she does wish the government could do more to bring them back down.

“It’s just frustrating because when is it going to end,” she said. “How high is it going to get?”

While economists, politicians and pundits debate what to do about the rising cost of gas, young people like Karnaukh are likely to be among the hardest hit by higher prices. They already spend a larger percentage of their annual incomes on gas than any other age group. Higher prices combined with shrinking paychecks are making them set aside even more money to fill up their tanks.

Rising gas prices, like ever-increasing tuition rates and mounting college debt, have become a part of life for most millennials. Regular gas first passed $2 a gallon in 2004 when many of today’s 20-somethings were first learning how to drive. In the summer of 2008, prices reached record highs. Regular gas cost as much as $3.91 a gallon in Lawrence that July.

Escalating tensions in the Middle East and rising demand from countries like China could push gas prices even higher this year. Some observers believe they could reach $5 by this summer. Though Republican presidential candidates blame President Obama for rising prices, experts say they’re beyond his control.

“There’s not a lot we can do in the U.S. to affect oil prices and gas prices because they’re established in world markets,” said Isabel Sawhill, an economist at the Brookings Institution, a Washington-based think tank. “It’s pretty hard to say what Obama has done to make oil prices go up.”

What the recent spike in gas prices will mean for millennial voters this year remains to be seen. But the longer they remain high, the bigger threat they become to Obama’s re-election chances.

Despite his claim that no one has a “silver bullet” for rising prices, Obama faces growing pressure to get them under control. A recent Gallup poll found that 65 percent of Americans believed the president and Congress had the power to influence gas prices, as opposed to 31 percent who said they were outside of Washington’s reach.

Young households and financially independent people under the age of 25 spent nearly $1,500 — 5.6 percent of their income after taxes — on gas and motor oil in 2010, according to the Bureau of Labor Statistics. Because Karnaukh lives with her parents, she is not considered financially independent. The national average for all age groups was 3.5 percent.

And that’s when the average price for a gallon of regular gas was about $2.80 nationally. It passed $3.80 earlier this month, according to AAA’s Daily Fuel Gauge Report. If a $1 increase were sustained throughout the year, it would cost young people an additional $500 for the same amount of gas they bought two years ago.

Meanwhile, the weekly earnings of 18- to 24-year-olds has fallen six percent since 2007, the greatest drop of any age group, according to a Pew Research study released last month. The study found that the recession hit Millennials the hardest, making them among the least prepared to handle rising gas prices. It’s another blow to a generation that’s all too familiar with financial instability and economic uncertainty.

Though higher gas prices eventually encourage people to drive less and buy more fuel-efficient cars, young people, like most Americans, struggle to adjust their driving habits in the short term. A 10 percent increase in prices generally leads to a three percent drop in driving within a year.

“It’s very hard to adjust your life to driving less,” said Michael Smart, a postdoctoral researcher in transportation at UCLA. “You’d think if there’s a 10 percent increase in the price of something you’d just consume 10 percent less, and we see that people are not really able to do that much.”

Burdened with student loan debt and diminishing paychecks, many 20-somethings can’t afford new cars either. Instead, they remain stuck with what Smart called the “worst slice of the national vehicle fleet” in terms of fuel efficiency.

Higher prices could also hamper the economic recovery — bad news for a generation already struggling to find work. Fifty-four percent of 18- to 24-yearolds are currently employed, the lowest share of young people since the government began collecting data in 1948, according to the Pew Research survey.

IHS Global Insight, an economic forecasting firm, estimates that a $0.24 increase in the average price for a gallon of gas would take 0.2 percent off the national gross domestic product. So far, the recent rise hasn’t been enough to drive the economy back into recession, but a sharp rise would impede the nation’s already slow recovery, according to a report published earlier this month by the organization.

And if prices climb past $5?

“We would be staring recession in the face,” the report said.