Once a month we check in with Thicken My Wallet (TMW), a personal finance blogger. He updates us on progress made on his financial goals and we discuss timely topics.
This month I asked TMW, “What’s the greatest financial issue facing Americans today? How does this issue affect your personal finances or goals?”
Like many in the Geezeo community, TMW said: FUEL!
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How High Energy/Fuel Prices Will Change Your Life as You Know It
by Thicken My Wallet
At the risk of doing a “year’s best list†not even half-way through the year, it is appearing that 2008 has several broad personal finance themes emerging. The three largest and most immediate themes for you and I are obviously the bursting of the real estate bubble, the loss of jobs brought on by the economic slow-down and high energy and fuel costs.
While the real estate bubble and economic cycles has really short to medium term effects, as painful as they are, at the end of the day, the real estate market and economy will eventually correct itself to some manner of certainty and predictability.
On the other hand, it appears that high energy/fuel prices are here to stay. My gas bill for my six cylinder car now represents over 10% of my fixed costs in any particular month. To put this in perspective, if I didn’t have to drive, I could increase my mortgage payments by 25%! The high price of food is also influenced, in part, by increased fuel costs to transport food from the farms to our local supermarket. As a result, my food bill has gone up 20% without buying anything different.
In other words, even if you didn’t drive, high energy and fuel costs will get you one way or another and will affect our bottom lines dramatically.
High fuel/energy costs also have much broader impacts on how we will live in the future which a short-term correction in real estate prices and a slow-down in the economy will not. Consider how continuing high fuel/energy prices will affect our daily lives:
1. The end of the suburbs: The suburban mode of living is a housing phenomenon directly tied to the rise of the affordable automobile and fuel/energy costs. We exchanged small lots and reasonable commute times (typical of central city living) with large lots and longer commute times of the suburbs. But what happens when that trade-off disappears; in other words, the cost of commuting increases dramatically due to high gas prices- so much so that the benefit of a larger home is off-set by the cost of commuting? Does the market then demand they live closer to the city core to avoid high gas prices (not to mention the brutal traffic jams?)
Many of my friends are already shopping for smaller houses closer to downtown. They would rather take public transit or car-pool short distances than live in the suburbs and pay hundreds of dollars a month at the pump- large homes be damned. In some urban regions, such as Boston, we are seeing an increasing focus on revitalizing the down-town core as a place to live. Part of this trend is influenced by market demand but also dictated by the simple fact most of us cannot afford the cost of living in the suburbs and need to live close to work.
High fuel/energy costs may result in the return of central city living and the death of the suburbs as the sought-after housing form.
2. The acceleration of the disappearance of the middle class. Fuel and energy costs are fixed costs which keep increasing. You have to heat your home, put gas in your car and pay for electricity for your hot water heater no matter how much you make. But, most of our salaries are not going up at the same rate. The result is predictable- we have less money in our wallets at the end of the month.
Meanwhile, a smaller and smaller class of people are making mega dollars off of increasing fuel and food prices (you have to remember that gas tax represents a little more than 10% of gas prices; thus, the other 90% is going into the hands of private enterprise). A gas tax freeze would do little to alleviate middle class pain- this is not Europe where over 50% of the cost of gas is tax and the government has the ability to take the tax revenue and prop up the middle-class with program spending.
High fuel/energy prices, combined with out-sourcing and other structural changes in the economy, are only adding to the disappearance of the middle class.
3. The end of the work week as we know it. A friend of mine told me that their work has now gone to 4 day weeks of 10 hours each for the summer. Everyone gets Friday off. Why? The company is trying to save their employees money by reducing the amount of travel during peak gas price season.
Telecommuting- the practice whereby employees have flexibility in terms of where one works and when- use to be promoted as a means to retain talented employees who, for whatever reason, could not be at work during the entire work week. Now, it is being promoted as a means to save fuel costs. Depending on how you look at it, it is either the employer being enlightened or, cynically, a means to mitigate against any salary increases to off-set the higher costs of commuting.
The traditional 5 day work week was already evolving to adapt to the needs of employees but high fuel/energy prices is another external pressure to employers to change the way work is carried out with the above examples being 2 ways our work-place is adapting to energy costs.
High fuel/energy prices are changing where we live, how we work and the structure of our society. These are long-term effects which go above and beyond short-term real estate prices changes or job losses. The impact will affect our children and their children. This is why I already vote high fuel/energy costs as the personal finance story of the year so early in the year.
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Be sure to check out Thicken My Wallet’s personal finance blog and let him know what you think!
