What is Financial Trauma?

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Understanding the root causes of financial trauma is an important step in beginning to heal and overcome this trauma and its long-lasting impacts

Approximate read time: 7 minutes

Raise your hand. For each of the following statements that you agree with, put a finger down.

“I am frequently upset at reminders of my past financial choices.
“I have difficulty falling or staying asleep because money is on my mind.
“My body reacts when I’m thinking or talking about money and finances (sweatiness, increased heart rate, churning stomach, dizziness).
“I avoid or put off opening mail, paying bills, or making even small financial choices.”
“I have difficulty concentrating on things because of my finances.”

If you have three or fewer fingers still up, keep reading!

Let’s take those same five statements and re-frame them.

“I am frequently upset at reminders of that car accident.”
“I have difficulty falling or staying asleep because I’m thinking about the abuse I suffered.”
“My body reacts when I’m reminded of or talking about my stroke.”
“I avoid or put off doing anything related to my trauma.”
“I have difficulty concentrating.”

It’s easy to see these second five statements as indicators of possible trauma. But why don’t we ever hear those same indicators as financial trauma? It’s so seductively easy to think “I just need to get my act together” regarding finances. But we wouldn’t tell someone who’s been traumatized to “Just get your act together with that trauma already!”

We use money nearly every day of our lives, yet we never really appreciate that our mindsets and choices around money have the potential to be traumatizing and re-traumatizing. And, weirdly, finances are one of the few domains of our lives where we can actually traumatize OURSELVES… which comes along with a whole bunch of shame, guilt, regret, and remorse.

So when people ask why my curriculum is trauma-informed, this is why. Because our world is getting better at talking about traumas, and understanding that just ignoring traumas NEVER heals them.

Frustratingly, however, we are still no better at recognizing or talking about financial trauma. And we can’t get better at talking about something if we don’t know what it is

What is Financial Trauma?

Within the Pacific Stoa curriculum, financial trauma is defined as a lasting emotional and behavioral response to a disturbing financial event or memory of an event. These events can be either directly or indirectly financial events.

Causes of Financial Trauma

Our earliest financial traumas happen in childhood, but we have plenty of opportunities to look back over our lives and see all the things we did “wrong”, and each one of those incidents, and every time we think about those incidents can register as trauma.

There are the obvious causes of financial trauma:

  • Job loss, underemployment, or lack of financial opportunities
  • Unforeseen expenses or missing out on unexpected financial opportunities
  • Limited access to financial resources
  • Divorce and separation
  • Natural disasters
  • Medical expenses

And then there are the less obvious causes of financial trauma:

  • Financial enmeshment as a child
  • Early childhood financial experiences and inherited messages about finances
  • Negative interactions with financial institutions and professionals
  • Being financially dependent on another person (partner or parent)
  • Having others financially dependent upon you (partner or grown children)
  • Systemic economic inequality
  • Our own internal shame, judgment, regret, and guilt
  • Cultural and societal expectations around money, success, productivity, and self-worth
  • Being a victim of financial scams or fraud

Societal and Cultural Impacts on Financial Trauma

We are almost perfectly set up by our cultural expectations for financial trauma. Many of the messages and expectations we’ve internalized over the course of our lives contradict each other, yet we expect ourselves to be able to meet each of those expectations.

One example of these impossible expectations is the Just World Fallacy.

The Just World Fallacy says good things happen to good people, and bad things happen to bad people.

It tells us the lie that the world is a just place, therefore to get yourself out of whatever pickle you are in, you just need to work harder, be more productive, prioritize better, burn yourself out a little more, and sacrifice a little more. If you are going through a tough time, if that pile of bills on the table is mocking you, or you don’t have enough in savings, or you and your spouse can’t communicate with each other about money, in some way you must have earned this hardship. And you just need to obligate or restrict yourself to get out of it.

The Just World Fallacy blocks empathy, both for yourself and for others. And it tells you that YOU are the problem.

Another cultural expectation is our honor culture’s obsession with how things reflect on us. Being concerned about reputation and how others see us is a deeply human thing. It’s part of how we stay connected to the safety of the larger community.

Unfortunately, this reliance on others for our own self-worth means that we overvalue a positive social image, and keeping up appearances.  The outgrowth of this in the personal finance world is that talking about money is taboo. Any part of our financial lives that we think might not conform to what we’ve internalized as the “correct” or “normal” way to use money will be something we hide.  That withdrawal and avoidance in turn makes it harder for us to seek out resources, and nearly impossible to communicate with others about what we need.

How Does Financial Trauma Impact Our Lives?

Not surprisingly, the varied causes of our financial traumas mean that we are more or less bathed in the compounding impacts of those traumas. While each of us is different, the impacts of financial trauma can look like this:

Not being able to trust yourself
Procrastination/ Avoidance/ Hesitation
Difficulty making decisions
Under or over-assessing risk
Negative impacts on close relationships
Mental and physical health impacts (lack of sleep, holding off on seeking medical attention or taking medication due to financial worries)

Financial Trauma and Mental Health

There is an evil feedback loop between finances and mental health.  Money is tightly bound to our sense of safety and security.  When our financial security feels threatened, we may suffer from anxiety, depression, hypervigilance, and PTSD.

In turn, those mental health concerns make it increasingly difficult to make good, future-focused decisions.  Mental health concerns are very selfish and present-focused.  And because all of our decisions are either directly or indirectly financial decisions, even the smallest choices have an impact.  Those present-focused decisions from the past compound, making life more difficult now, which triggers more anxiety and depression, which makes decision-making harder and on and on and on.

How to Begin Recovering From Financial Trauma With Financial Coaching Services

It’s okay to realize you are under the influence of financial trauma and that it’s making your life harder without needing to also shame or judge yourself.  You can take responsibility for and control your finances without punishing yourself.

While yes, it’s always important to seek help, either from a therapist, counselor, or trauma-informed financial coach, the most important thing you can do to begin recovering from financial trauma (or any kind of trauma for that matter) is the hardest thing for most of us to do:

Be gentle and patient with yourself.

Understanding the sources of your financial trauma is a wonderful natural step, but nothing will help you along the process of healing like being gentle with yourself.

Working With a Financial Coach to Create a Healthy Relationship With Money

I realize it looks like expecting yourself to keep to a budget will resolve financial trauma, or at least prevent new traumas, but nothing is further from the truth.

We’re talking about two different domains. Financial trauma lives in the domain of our relationship with money. Budgets live in the money system domain. You cannot fix a relationship concern with a system tool. Although most of us have tried MANY times. It’s like trying to fix a compound fracture with a root canal. Orthopedic surgery and dental surgery are both valid treatments, but only when the injury or illness calls for them.

Rather than starting with a budget, start with being patient and gentle with yourself.

In Conclusion

Financial trauma is the long-lasting emotional and behavioral response to a financial event. Surprisingly, the best way to begin healing financial trauma is to be patient and gentle with yourself.

What would you like to read about next?

Overcoming Financial Trauma

Financial Imposter Syndrome

Ready to Start Financial Coaching Services in California, New York, Texas, or anywhere else in the United States?

If you’re ready to break free from the shackles of financial trauma and take control of your financial future, it’s time to seek the guidance of a qualified financial coach. At Pacific Stoa, I’m dedicated to helping you heal from past financial wounds and build a solid foundation for a prosperous tomorrow. Don’t let your past define your financial well-being; take the first step toward financial recovery and security with financial coaching services. Follow these three simple steps to get started:

1. Reach out to me to schedule an appointment for financial coaching services

2. Begin meeting with me, Hanna Morrell, a skilled financial coach

3. Begin overcoming your past financial trauma and take control of your finances!

Other Services Offered at Pacific Stoa

At Pacific Stoa, I want to make sure you have everything you need when it comes to managing your finances. So in addition to helping individuals take control of their finances and overcome past financial trauma, I also provide Financial Coaching for CouplesFinancial Coaching for Divorce and Separation, and Financial Coaching for Families. I also offer Financial Consulting for Nonprofits and Businesses to help create a customized strategy built specifically for you, your organization, and those you serve. Check out my FAQ to learn more about Financial Coaching and my Blog!