Vermiculite is an inorganic matter that is made from mica ore and is finely shredded to absorb and retain water in potting soils and as an amendment in the garden. According to the Environmental Protection Agency, some vermiculite has small traces of asbestos in it, which pose little health risks in the home garden. Regardless, many gardeners use a vermiculite alternative instead. Vermiculite can also be expensive, so a more economical option might be desired as a substitute.
Peat (also known as peat moss) is light and holds moisture well but not does not stay soggy. It also allows air to flow through the soil. Peat takes hundreds of years to form and is harvested from bogs. According to Oregon State University, some wetland ecologists are concerned that it is being harvested at a non-sustainable rate.
Coir is coconut dust. It is made from the short fibers that are left over after harvesting the husk for other uses, such as rope and brushes. Coir holds water well and can stay moist longer than peat. It also decomposes more slowly and therefore will not need replenishing as quickly.
Like vermiculite, perlite is an inorganic matter added to the garden to improve water drainage and permeability. Perlite is volcanic glass and does not have very good water retention and is therefore a good substitute for use in clay soils.
Sawdust from untreated wood works well as a vermiculite substitute. It loosens the soil and also holds moisture well. Use sawdust that has been out in the weather for at least two to three months or else you will have to add nitrogen (such a urea) at the same time you add the sawdust.
Shredded Hardwood Bark or Wood Chips
Shredded hardwood bark and wood chips both help loosen the soil and improve water drainage. They absorb water well, but do not hold it for long, so more frequent waterings might be necessary.