The Melbourne Institute household financial conditions index (which measures savings) fell to 25.2 points in June, its lowest level since the start of the survey in March 2001 (see above graph).

That was down from the March 2011 survey result which recorded an index of 33.3 points.

Some media reports suggested that was a big negative, a poor result, but it can also be seen as a positive.

The household financial conditions index shows the proportion of households who are saving relative to the proportion of households who are running into debt or drawing on their savings.

The survey covered 1200 households nationwide.

On the face of it the survey showed a rise in financial worries in those households has driven the increase in savings, giving the impression of a deteriorating level of confidence.

But that's not quite the case, when the details of the report are looked at.

The most popular reason to save in the survey was for a holiday or travel, with 58.7% citing this reason, almost level with March (that is hardly a negative; people who are gloomy do not spend on travel).

The second most popular reason for saving was "for a rainy day or a precaution" with 55.4%, down 0.2% from March (nor is that a negative, that is being prudent).

The ''rainy day" reading was the highest since the survey began including respondents' motivations for saving in May 2005, the Melbourne Institute said yesterday.

Repaying debt and paying bills was the third most popular reason for saving, with a response of 46%, a jump from 41.6% in the March survey (that's normal as well, especially with the emphasis on not spending at the retail level and saving in banks).

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This actually helps explain why the national savings rate is above 11%, when five years ago it was negative.

In last week's May consumer sentiment survey from Westpac and the Melbourne Institute, respondents showed a similar conservatism in their approach to saving or investment.

As outlined in last Friday's Air Weekly the consumer survey contained these findings.

“The attitudes of respondents to the wisest place for savings are consistent with the concerns about their finances which are apparent in the main survey. Consumer caution dominates savings decisions in this survey.

“There has been another significant shift in preferences towards low risk investments.

"The proportion of respondents who nominated bank deposits as the wisest form of savings increased from 27.1% in March to 32% in June. Since 1979 this proportion has only been exceeded in December 2008 and March 2009.

"The proportion of respondents nominating "pay down debt" as the wisest place for savings rose from 22.6 to 23.9 – exceeded only in September 2009 and March 2010 since 1997.

“In contrast, the proportion of respondents nominating equities as the wisest place fell from 12.2% in March to 8.4% in June – the lowest proportion since the early 1990’s recession (excluding the GFC period in 2008–09), while "real estate" did not fare much better falling from 16.3% in March to 14.6% in June, down from 21.7% a year ago and the lowest proportion in the history of the series back to 1974 (excluding the GFC)."

Research Fellow at the Melbourne Institute, Edda Claus expressed surprise at the falling savings gauge because house prices have been moderating and unemployment has fallen below 5%.

"This could indicate that consumers see weakness ahead in economic activity and hence increase their precautionary savings," Dr Claus said.

''We think there is more uncertainty in the economy, domestically and globally,'' Dr Claus said.

That's quite true.

But taken together both reports from the Melbourne Institute help explain why savings are rising.

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