How Financial Trauma Affects Your Relationship With Money

Rahkim Sabree owns a home in Hartford, Conn., invests and has money in savings. But that’s not always enough to make him feel safe. Unexpected expenses, regardless of the cost, make him uncomfortable.

“I worry a lot when I have to spend money,” said Mr. Sabree, a 33-year-old financial coach and consultant. This sometimes causes him to postpone paying for necessities such as new shoes or home repairs.

During his teenage years, Mr. Sabree, who is Black, lives with her family in subsidized housing and pays for groceries with food stamps. “When things got really bad, we didn’t have electricity and water,” he said. More than once, they were almost kicked out. It was embarrassing to see the eviction notice on the door, Mr. Sabre.

Those experiences shaped how he spent and saved. Feeling in control of his money brought peace, Mr. Sabree said. But when that control is lost, anxiety sets in.

Experiences like Mr. Sabree can lead to what financial psychologists call “financial trauma” — an intense and lasting emotional response to current or past financial hardship, said Alex Melkumian, a psychologist and the founder of the Financial Psychology Center of Los Angeles.

Financial trauma can cause negative thoughts, flashbacks and anxiety — symptoms that mirror post-traumatic stress disorder, or PTSD. Unlike everyday stress, trauma doesn’t go away and disappear. This ends up damaging your relationship with money, says Thomas Faupl, a financial therapist in San Francisco.

Common causes of financial trauma include medical debt, financial uncertainty and an economic crisis. For example, survivors of the Great Depression were less likely to invest in the stock market because they feared another crash, damaging their retirement savings.

Trauma can also travel through generations in various ways, such as inheriting your parents’ debt. Dr. added. Melkumian said systemic problems, such as racism and discrimination, may also play a role.

Unlike PTSD, financial trauma is not a mental health diagnosis, so financial counselors and therapists often ignore it. Many people are never told that stressful experiences involving money can harm their financial and psychological health, Mr. Faupl said. Despite this, a 2016 survey found that 25 percent of Americans, including 36 percent of millennials, reported PTSD symptoms due to financial hardship.

Recognize stress signals

One sign of financial trauma is avoiding money, Dr. Melkumian said. In other words, some traumatized people may refuse to make a budget, open their bills or discuss their finances.

Avoidance can also mean neglecting to spend when you need to. For example, Mr. Sabree uses his behavior to the point of frugality. But he realized that unlike saving for a rainy day, his choices were sometimes motivated by a desire to avoid another hardship of poverty.

Any painful experience involving money can make you feel insecure, says Aja Evans, a financial therapist in New York City. This often leads to negative thoughts, he explained, such as “I will never have enough money” or “I will never be good with money.”

Overspending can also be evidence of financial trauma. You may try to compensate for your childhood deprivation by overindulging as an adult. For example, you may blow your savings on a vacation, eat too much or spend all your money shopping online.

Chantel Chapman, a 40-year-old entrepreneur in Richmond, British Columbia, used to be a spender this way. For nearly a decade, she bought gifts, clothes and dinners she couldn’t afford, she said. This left him with nearly $10,000 in credit card debt and $10,000 in tax debt, hampering his savings.

Like Mr. Sabree, Ms. Chapman grew up without financial security. But while the financial trauma of Mr. Sabree makes her thrifty, Ms. Chapman resulted in overspending.

“I have a twisted relationship with money,” he says. Ms. Chapman said he was afraid of debt but that his desire to belong to a wealthier crowd made him spend more than he earned. The trauma made him a pleasant person, he said, adding, “I thought I had to find a certain way to be accepted.”

Sabotaging your financial future is another danger signal. You may believe that having a high-paying job makes you selfish or something you don’t deserve, said Mr. Faupl. As a result, saboteurs may not apply for a higher paying job, or they may not ask for a raise.

Once you recognize the signs of financial trauma, you can work on a solution. To begin with, try to examine the “problem through the window of money,” advises Mr. Faupl. From this point, ask yourself: “What do I need to do to solve my financial situation?”

See triggers

Any thought, feeling or memory associated with trauma can cause distress. For example, if you lost money during the financial crisis of 2008, watching the stock market collapse may cause anxiety. Or if you’re saddled with student loan debt, the end of a payment freeze can be scary.

“It feels like watching a scary movie all over again,” said Michelle Griffith, a senior wealth adviser at Citi Personal Wealth Management.

Ms. Griffith has seen an increase in financial trauma among some of his clients. In 2009, some people lost up to 40 percent of their retirement savings. Now, with the possibility of another downturn, they are worried about the return. This can make people afraid of the risks that come with investing, Ms. Griffith said, prompting them to cash out of their investments or retirement accounts sooner.

If the emotional rise, Ms. recommended. Griffith is letting the facts drive decision making. “Even bear markets rebound,” he said. And for the past 70 years, the stock market has fallen by 5 percent several times a year. Knowing that the dips temporarily help ease the pain, Ms. Griffith said.

While no one can predict the future, knowing your triggers puts you in a better position to take care of yourself, Ms. Evans said. Even taking a deep breath, going for a walk or talking to a friend can calm you down, making you less likely to resort to compulsive actions, she says.

Establish financial boundaries

Boundaries help us feel safe in relationships, and they can also control our financial behavior.

For example, Ms. Evans said that overspenders will remove credit cards from apps and online stores. The excitement of buying gives a rush of dopamine, which can inhibit your self-control, he says. But if your credit card doesn’t work, it’s harder to splurge.

People who avoid money may take small risks, such as pushing themselves to spend $10 or $20 on a happy experience. It is called by Dr. Melkumian calls it “mandatory splurging,” and says it’s a way to get out of your comfort zone. It does the opposite of what the negative emotion tells you to do, he says.

Any behavior that prevents avoidance is also beneficial. Ms. suggested. Griffith to set up automatic money transfers from your checking account to your savings every month. You can also automate your monthly bill payments and allocate funds from each paycheck to your retirement account.

Find support

Recovering from financial trauma is a two-part process. You have to deal with the financial aspect as well as the trauma it causes, Mr. Faupl said.

Talking to a financial therapist who specializes in financial trauma is the first step. With a background in psychology and money, a financial therapist can help you understand the relationship between your painful experience and your financial issues. For example, if your family fought about money when you were young, Mr. Faupl said, you can avoid difficult financial conversations as an adult. Or if you grew up with no financial security, you can stash away money later in life.

In addition to therapy, taking a financial literacy class or talking to a financial counselor can set you up for success.

As part of her recovery, Ms. Chapman turned to psychotherapy and financial education. However, none of his therapists made the connection between his trauma and financial difficulties. She was told to use her will, which caused more embarrassment, she confessed. In the hope of educating others, Ms. Chapman founded Trauma of Money, an educational site that teaches financial trauma literacy classes.

Mr. Sabree also strives to help others, especially those in the Black community, develop healthier financial habits. In his personal and professional experience, financial trauma never goes away.

“It’s not like turning off a light switch,” he said. It can’t be erased, but you can fix it.