High fuel costs are eating into rural Americans’ disposable income at a faster rate than urban households, meaning rural families are feeling a more painful pinch from inflation, according to a researcher who recently released a report on the topic.
Rural household disposable income fell by an estimated 38% from 2021 to 2022, while urban household disposable income fell by about 17%, the report found.
“So that’s a big drop,” said Iowa State University’s David Peters, the author of the study, in an interview with the Daily Yonder. “If you think about after all your bills are paid, what’s left over in your bank account?”
The report, Impact of Inflation on Rural Household Expenses, 2021-2022, provides preliminary estimates based on data from the U.S. Bureau of Labor Statistics. Peters is an Extension rural sociologist and professor of rural policy and rural sociology at Iowa State.
Peters said the main driver for inflation in rural households is fuel prices.
“Rural households have to travel more for everything,” he said. “They have to travel further for work, for school, for shopping, for daily needs, all that. And then additionally, most rural households tend to drive less fuel efficient vehicles. So there’s no public transportation, they’re less likely to purchase hybrids or electric cars. And then a lot of times the nature of work in rural areas requires larger vehicles – trucks, for example.”
Rural households earned less on average than urban households, and they had less left over after they paid expenses, the report said. The gap got worse over the last year, according to Peters’ estimates.
The study takes into account the different costs of living between cities and rural areas. Rural households saw less of an increase in housing costs compared to their urban counterparts, for example. But the differences weren’t enough to make up for overall lower earnings.
In 2021, the average rural household had a post-tax income of $58,625. About 84% of rural incomes went toward expenses, leaving $9,354 in disposable income for savings and unanticipated needs.
But in 2022 rural households will spend an estimated 90% of their income on expenses because spending will rise an estimated 9.2% because of inflation while earnings will rise only 2.6%. The net effect cuts rural disposable incomes by more than a third, reducing the cushion to only $5,800.
The impact of inflation in urban households is real but less dramatic. The average urban household spent about 80% of its income on expenses in 2021 and about 84% in 2022, according to Peters’ estimates.
The report said that inflation has “severely” reduced the disposable incomes of rural Americans, while the impact on urban households has been less severe because of higher incomes.
“This means that rural families have less money to save for their retirement or their children’s college – both needed for the future economic security of themselves and their children,” according to the analysis.
“Less ability to pay unexpected healthcare costs not covered by insurance, putting at risk their health and ability to work. Less ability to pay for emergency home repairs that may put them at risk for homelessness. Less ability to pay for big-ticket car repairs or needed used car purchases, jeopardizing their ability to work and to obtain essential goods and services, like groceries or healthcare. Not having this extra financial cushion puts rural families at greater risk for increased debt, default, and potential bankruptcy.”
Peters said in an email that his analysis is based on average income and expenses, which means that affluent and poor households will skew the findings up or down.
How This Study Defined Rural
The study used two criteria to define rural. Rural households were those that were 1) in a nonmetropolitan county and 2) were not in a city of 2,500 or more residents. In other words, residents of nonmetropolitan counties who lived in a city of 2,500 or more residents were defined as urban. For more information on how to define rural for statistical analyses, visit the Economic Research Service at the U.S. Department of Agriculture.
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