Save or Spend Your Gas Price Bonus?

02/11/2015 04:37 pm ET | Updated Apr 12, 2015

It can't have escaped your notice that it costs about half as much to fill your gas tank as it did a year ago. That's a huge benefit for the average American consumer -- an average savings of about $60 a month for most families, and far more if two family members commute to work by car.

What do you do with those savings?

Some people have very little choice. Any extra money goes to basic needs -- food, medicine, doctors' bills. It's not considered "discretionary income."

For others, the savings on a fill-up at the gas station is merely a passing awareness. It means they can drive their gas-guzzling SUV feeling a bit less bothered about the cost.

But for many Americans, the drop in gasoline prices (and in home heating bills) creates an interesting opportunity: Should they spend the money, save the money or pay down debt?

The latest numbers show that for those who can make this choice, the most popular option -- so far -- has been to save the money or pay down debt. December's decline of 0.3 percent in personal spending reflects the lower outlays on gasoline and home heating, which were not offset by additional spending in other areas.

Americans seem to have learned a bit of a lesson in the past seven years. The New York Federal Reserve Bank reported that outstanding credit card balances fell significantly in November, by 1.3 percent or nearly $1 billion, as consumers paid down debt in November. But the holiday shopping urge caused to borrow again, adding $5.8 billion in credit card debt, auto loans, and student loans. That was the fastest pace in 8 months, and reflects an increase in consumer sentiment about the economy.

In fact, consumer sentiment in January reached an 11-year high, according to the University of Michigan monthly survey. So consumers are feeling more optimistic about job prospects, but many are using the extra money from lower energy prices to save or pay down debt.

Is that good news or bad news for the economy? And what should you be doing now?

The best thing about our free economy is that individuals have choice. And despite evidence that appears to show they have made bad decisions in the past -- taking on mortgages they had no chance of repaying, taking out student loans for an education that does not prepare graduates for jobs -- consumers are actually very rational.

In fact, a decade ago consumers were indeed acting in their own rational best interests when they were offered mortgage deals that allowed them to move into homes they might not otherwise afford. If the lenders were willing to make the loan, why not accept? Similarly, the enticing prospects of four years on a nice college campus, to be repaid some time long down the road to the future, was a rational decision to make when government-subsidized student loans were being handed out.

But there is one more thing about American consumers: they do learn lessons from experience -- especially if the lessons are learned the hard way.

It's an old Savage Truth: The lessons that cost the most teach the most!

Now the economy is feeling the effects of a populace that has become scared of the responsibilities of home ownership, and would prefer to rent instead of owning -- even at incredibly low mortgage rates. It's that same expensive lesson that is encouraging people to take their extra money from a cheaper gas fill-up and put it toward a credit card balance instead of a vacation.

You really don't have to be a math genius to figure out that paying interest at the current average credit card rate of 15.7 percent (according to is not a very good deal when your wages are rising at just 2.9 percent a year -- if you're lucky!

So, if given a choice, the smart consumer makes the rational decision either to pay down debt or save the money for a rainy day. We've learned the "rainy day" lesson after living through an economic storm system that lasted far too long.

Now only really great deals -- whether on a new television, clothing, a new car, or a new home -- will tempt Americans to spend that "extra" cash, the energy dividend. And with business capital investment slowing, weighed down by less demand for drilling equipment in the energy sector, the big economic question is whether consumers will pick up the slack in 2015 and keep economic growth going.

A reminder may be in order: It's not your job to boost the economy by spending all of your paycheck, and more. If you make the sensible decision for your own household, you'll be fulfilling your highest responsibility to yourself and your family -- and to the economy. That's the Savage Truth.

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