A Big Brother-style experiment into finance and debt has revealed millions of us are throwing away money by trying to save.

Twenty families in Brighton and Hove are being used in a social study to see if financial advice is the key to solving the nation's debt and savings problems.

The year-long experiment - the first of its kind in the UK - has been tracking the families, all from the same community, since November.

Half are being given financial advice, while the other half are not.

Insurance giant Axa, which is behind the project, hopes it will help to combat the UK's widespread financial apathy, as well as inform the debate on financial planning.

The 20 families taking part in the experiment, dubbed Axa Avenue, work in jobs ranging from driving instructors and green-keepers to film directors and graphic designers.

New research from the second quarter of the experiment shows that one in four adults loses out by building a nest egg before paying off their credit cards.

They save an average of £221 every month, earning £12 in interest, but spend nearly six times as much interest - £71 each month - on debts of £7,622. Resident independent financial adviser Saran Allot-Davey said: "Those people who are saving money over and above clearing debts are paying unnecessarily high charges instead of redirecting savings for the short-term to be debt-free.

"Our attitudes to debt and savings seem to be at odds with one another. On the one hand, we feel compelled to save, yet we are comfortable with increasing levels of unsecured debt because it's regarded as the norm."

Debt levels in Britain have soared through the £1 trillion mark as the "buy now, pay later" culture takes hold.

Participant Laura Stevenson said: "Over the past six months, Saran has helped us to take control of our debts.

"One of my early concerns was that we had no short-term savings. She made it clear that saving was very important, but only once we had reorganised our debts and taken control of our situation.

"I am now able to put money aside every month while making repayments on my existing debt, which has been reorganised into low interest arrangements.

"The help Saran has given us to plan our finances has been wonderful. It's been amazing to see our debt drop month on month and now we are starting to make plans to save for a deposit on a house."

Ms Allot-Davey has cut debt across AXA Avenue's ten families by £10,000 in just six months. And this was simply by telling them to switch credit card debt to interest-free deals, increase repayments and put off saving until the debts are under control.

She said: "It is great that such a proportion of the population, more than 50 per cent, are saving on a regular basis. The message we must all take responsibility for our financial security is getting through. My concern, however, is that some people are saving indiscriminately."

The average age of the participants is 37, while they live in homes worth just over £200,000 and have an average household income of £30,000 a year.

But only half of the families involved are contributing to a pension, while 60 per cent have debts, excluding their mortgage, owing an average of more than £14,000 on a combination of credit cards, overdrafts and loans.

Friday, May 12, 2006