Money Trauma: Understanding and Healing from Financial Trauma
UPDATED MARCH 2024What is Money Trauma?
Money trauma (I’ll use financial trauma interchangeably, too) is a cluster of physiological, mental, and emotional responses to an event or series of events where actual or threatened financial harm occurred. Money trauma or financial trauma isn’t a diagnosis in the DSM, rather, it’s something people in the financial therapy and behavioral finance sectors have noticed.
In 2016, PTSD researcher Dr. Galen Buckwalter, teamed up with Happy Money (formerly Payoff) to analyze survey data of 2,011 responses about their relationship with money. They found that one in four Americans and as much as one in three Millennials suffer from PTSD-like symptoms caused by financially induced stress. The behaviors endorsed by people who have financially induced stress include financial behaviors such as avoidance or procrastination, denial around healthy financial choices, and difficulty planning, organizing, and managing their financial lives. They even endorsed symptoms typically associated with PTSD, like isolation, hypervigilance (feeling on edge or assessing for threats), irritability, intrusive thoughts, and feeling detached or numb.
While many people do develop symptoms associated with financial trauma, not everyone who experiences chronic or acute financial stress will develop financial trauma. While most of us have been exposed to some type of financial trauma, not all of us will develop the symptoms or behaviors that are consistent with money trauma.
Examples of What Causes Money Trauma
There is no one cause of money trauma, but when we think about things that cause a person to experience financial trauma, they could be repeated, chronic things (think: systemic poverty), or one-time acute financial stressors (think: a divorce). Below are frequently cited causes of financial trauma.
Debt. Owning a person or institution's money can cause a financial trauma response, especially if that debt comes along with a fear of safety, such as a threat or actual eviction or threats by creditors.
Medical debt
Student loan debt
Predatory payday loans
Credit card debt
Personal loan debt
Bankruptcy
Chronic Financial Insecurity
Small business owner/closing a business
Job loss
Underpayment and underemployment
Systemic poverty
Acute life events
Divorce or Breakup. Can be especially at risk for financial trauma symptoms if one person in the relationship relied on the other for financial stability.
Death
Moving
Incarceration
Chronic Illness. Chronic illnesses can make it difficult to get or maintain employment. On top of the illness’ manifestation, having to attend frequent doctor’s appointments and complementary medical care can take up time and financial resources.
Addition of a household member. Birth of a child, adoption of a child, aging family member moving into the house, and having a roommate move in are all examples of the addition of a household member.
Collective Trauma. Collective trauma is when a group of people that are connected in a meaningful way (for example, they live in the same community, share a racial identity, or belong to the same religion) experience a shared traumatic event. Some examples of collective trauma that may result in financial trauma are listed below.
Recessions
Pandemic/Endemic
Racism
Sexism
Homophobia and transphobia
Ethnic and religious persecution
Extractive capitalism
Climate change/natural disasters
Generational Trauma. What one person experiences in their lifetime can be passed down to their descendants in their DNA. This is called “epigenetics,” where the expression of the genes is changed depending on the conditions someone lived through. Generational trauma is when a descendant of a person who experienced trauma responds similarly to stress, even if they never experienced the same trauma their ancestors did.
Undocumented
Fear of bank failures
War
Famine
Redlining
Financial Trauma Behaviors
Earlier, I shared some of the symptoms of financial trauma, such as being hypervigilant, having racing thoughts, or feeling physically uncomfortable when thinking about or engaging with money. Those symptoms can also accompany some harmful money behaviors, including avoidance, underspending, overspending, and financial codependency.
Avoidance/Procrastination. Avoiding looking at bills, monthly income or expenses, putting off filing taxes, or not talking to family financial decision-makers are all examples of avoidance behaviors.
Hoarding/Underspending. Holding on tightly to money or not spending it when it’s safe to do so is another type of financial trauma response. When people are exposed to financial stress, it makes sense that to try and cope with it, they swing in the direction of holding on tightly to money and not allowing themselves to use it safely.
Overspending. Being fearful of money and unable to slow down and learn the basics of financial literacy and management can sometimes show up as overspending. When financial trauma symptoms look like a racing heart, hypervigilance, and emotional distress, it makes sense that a person would overspend to A) get the positive chemical responses associated with spending money and B) spend money quickly to avoid engaging with it.
A lot of shame comes up when someone who grew up or lives in a financially insecure environment overspends. However, if we think about it the way we might to someone who is food insecure, we can find ways to extend understanding and empathy. For example, if a person grew up food insecure, it makes sense that they overeat when they have food available. Even if they haven’t been food insecure for years, their memory of food insecurity can remain visceral and intense for years after the times when they experienced not knowing where their next meal will come from. Now, think about a person who experienced financial insecurity. If money comes in (via a paycheck, tax refund, or law settlement), it also makes sense they may quickly spend the money because they aren’t used to having a consistent and stable income source.
Codependency or Enmeshment. Financial codependency happens when a person capable of earning and managing money relies on someone else financially OR when they enable a person capable of financial management not to have to understand the ins and outs of money.
Post-Traumatic Growth and Resilience
Post-traumatic growth (PTG) is the process of resilience that helps a person recovering from trauma to expand their ability to function and find meaning in life. In 2004, researchers Richard Tedeschi and Lawrence Calhoun found that PTG occurs in many people who’ve experienced trauma.
There are currently seven different areas of post-traumatic growth:
Greater appreciation of life
Elevating and strengthening close relationships
Fostering increased compassion toward self and empathy for others
Discovery of life’s possibilities or a renewed sense of purpose
Increased ability to honor personal strengths
Enhanced spiritual growth and exploration
Growth in creative expression, inspiration, and consumption
Healing Money Trauma
While there’s much emphasis on the scary parts of trauma, the beautiful thing about the human brain is its neuroplasticity, or its ability to heal and learn new ways to process things. Recent studies have started to shine a light on a person’s ability to recover from trauma and how they can pass that healing and resilience onto their offspring. It’s absolutely possible to heal money trauma, or at the very least, to reduce the negative effects of financial trauma.
As a therapist, if you're experiencing trauma and symptoms of post-traumatic stress disorder, I almost always am going to recommend mental health treatment. Depending on your personality and the trauma you’ve experienced, some trauma-informed treatments include EMDR, trauma-focused CBT, somatic therapy, animal-assisted therapy, eco-therapy, and/or psychiatric treatment.
The following list is NOT meant to be a substitute for professional mental health advice or financial advice. It’s simply a list of ideas that may be helpful for you or a loved one if you have signs of financial trauma.
Talk. Talk about your money trauma with a trusted friend, a trusted colleague, a trusted partner about what you're experiencing or what you're going through. Having the ability to process things verbally and to have somebody hold space for you is a great way to help move through that trauma.
Education. Learning more about your money trauma, how you’ve responded to it, and financial and mental health education can help you manage your money in ways that don’t feel so overwhelming.
Practice Self-Care. Find ways to soothe your nervous system and support yourself–both when interacting with your money and when you aren’t. Self-care can take many forms but generally means taking care of yourself physically, mentally, emotionally, and spiritually.
Set Healthy Boundaries. Especially if you are in an enmeshed or codependent relationship, finding healthy limits that keep you mentally, emotionally, and physically safe. For example, if you have been supporting a financially capable adult with their rent, you could tell them you’ll help out with their rent for 3 more months before you stop assisting them financially. three months, but after that, I'm no longer able to help financially.
Reduce Money Shame. Create a practice of self-forgiveness for past financial mistakes and start practicing self-trust moving forward. For more on money shame, I have an entire post you can read here.
Money trauma is something that can happen to any of us through an individual experience or a generational traumatic event. And while financial trauma has many negative symptoms, the human brain can change tremendously, and healing from money trauma is possible.
Financial Trauma Therapy Training
If you are a financial planner or financial therapist and found this post helpful, it’s a good idea to have some training on financial trauma. Financial Therapists Nate Astle and Khara Croswaite Brindle of the Financial Therapy Clinical Institute have partnered to create a 2-hour on-demand course called Treating Financial Trauma to help you understand money trauma and how to help clients in your practice. And, as a bonus, this money trauma course is approved for 2.0 AFCPE® CEs!
You’ll learn more about trauma and how it shows up in the body, gain a better understanding of what might cause a person to develop symptoms of PTSD, and learn to recognize some common behaviors of a client with money trauma. Finally, you’ll gain internal and external tools to help your client learn how to find safety using skills like mindfulness and reaching out to trusted friends and family. A greater understanding of this common experience can help you have the necessary information and tools to support your clients on their financial journeys. You'll also see a full session role play so you can observe these skills in practice. Please note: this mini-course will help you become trauma-informed, but it is not meant to serve as a standalone course to diagnose or treat mental health issues.
Find Support for Money Trauma
By encouraging open dialogue in your workplace or organization and seeking support from trauma-informed therapists, you can help meet the need of employees craving more financial wellness support form their employers. As someone deeply committed to destigmatizing conversations around money and financial trauma, I offer insights and strategies tailored to empower individuals and organizations alike. Invite me to speak on a panel, keynote, host a presentation or workshop today!