Is Financial Trauma Standing Between Your Family and Generational Wealth?

Our experiences in life can leave us in a deep and unsettling place mentally with money. We spoke to two specialists about financial trauma and what can be done to help ourselves and our children.

Black Father teaches his son about money at kitchen counter.

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As dialogue about mental health opens up, it has become apparent that trauma exists in a myriad of forms, including finance. This could explain many of our complicated behaviors and feelings around money. With 42% of U.S. adults saying that money negatively impacts their mental health, ask yourself: do you feel like you have a good relationship with money?

Many people have unknowingly developed an unhealthy relationship with it thanks to childhood experiences. Growing up in an environment where basic needs were not met–such as housing, food, and health–because of a lack of money can lead to financial trauma later on in life. It can also happen because of issues confronted in adulthood.

“Financial trauma can result from facing chronic financial hardships or from surviving an acute financial stressor,” explains Dr. Traci Williams, certified financial therapist, and board-certified clinical psychologist. “Wealth Justice activist Chloe McKenzie has described it as ‘the response to the cumulative harming of a person’s wealth-building capability and relationship with money.’ It has effects on you as well as your family.”

Generations in Poverty

Black Americans account for 44% of those experiencing one generation of poverty. This increases to 64% and 83% for two and three generations of poverty respectively. This means that experiencing poverty for three consecutive generations is almost exclusively a Black experience.

— Generations in Poverty

The events that cause this trauma can include “having severe debt, growing up in poverty, experiencing unemployment, financial or housing discrimination, or the financial effects of disability status, job loss, incarceration, or divorce,” specifies Dr. Williams. Other influential events can include family members’ struggles with money or deception around money-related matters.

While it's not an official mental health diagnosis, symptoms can resemble those seen with PTSD. Speaking to Aja Evans, LMHC, and financial therapist, provides further insight into how financial trauma presents itself: “I often see an overwhelming concern or anxiety about money, this can be present no matter how much money you are making, have saved, or invested, etc. It doesn't matter if they are financially stable, you can still feel the impact of your financial trauma.”

Evans notes that signs and symptoms may look like “losing sleep due to rumination or thinking about your finances, overwhelming feelings of dread when it comes to money, avoiding money behaviors needed to remain stable (like checking your statements), and underspending or overspending.” Importantly, she also highlights that it can manifest as physiological symptoms like stomach aches, IBS, headaches, or high blood pressure.

“Financial trauma can happen at any time in your life and the intensity of the impact doesn't have to shift with age,” stresses Evans. “I would say that it is more about how we are able to process it at the time of the traumatic experience.”

"As a child, you may not have the tools, understanding, or information to be able to process and hold the trauma you have experienced, you just live through it and it can color how you live the rest of your life,” she continues. Research from the University of Cambridge supports this, revealing that our money habits are set in stone by age seven and once formed it can be difficult to reverse those habits later on in life.

Generational Poverty

When discussing financial trauma, it’s hard to ignore the role race plays. Black people are more prone to experience several of its causes–such as poverty–and thus more likely to have experiences of financial stress and trauma. A 2021 report found that Black Americans account for 44% of those experiencing one generation of poverty. This increases to 64% and 83% for two and three generations of poverty respectively. This means that experiencing poverty for three consecutive generations is almost exclusively a Black experience.

Moreso, Black Americans face more economic insecurity than Americans overall and only 36% say they have a rainy day fund. “Black people have faced an extended history of financial exclusion and exploitation. This is evident in the disparities seen in the racial wealth gap and the racial financial literacy gap,” comments Dr. Williams. 

So, what can be done to overcome the trauma caused by these issues?

Evans stresses that it’s important to learn how to navigate and manage financial trauma and its triggers. “Realizing you have gone through a financial trauma is the first step to realizing its impact on you. Allowing yourself to admit that it was hard and that you were hurt by the situation helps to begin realizing your response to things that may trigger the memory.”

She acknowledges that this can be harder if you experienced financial trauma as a child. “It feels as if you are talking badly about how you were raised or what you experienced as a result of the decisions adults made around you.”

Dr. Williams suggests talking to trusted loved ones about money and your experiences around money: “By having open dialogue we can make peace with our struggles, get support, and shift to a solution-focused approach.” She also suggests starting small: “By making small, positive changes, you can gain control over your finances. For instance, make a habit of saving money every time you are paid to create an emergency fund.”

Steps To Take

There are also a number of specific solution-focused services that Dr. Williams recommends to help deal with financial trauma:

1. Work with a financial therapist to help you understand how you think about, feel, and behave with money. You can find a financial therapist through the Financial Therapy Association’s directory.

2. Seek out a psychotherapist specialized in cognitive behavior therapy (CBT) or eye movement desensitization and reprocessing (EMDR). They have training in managing the effects of trauma.

3. An accredited financial advisor can provide advice specific to your financial situation. “I especially recommend survivors of financial trauma work with a fiduciary to feel secure in the fact the advisor is working in your best interest,” advises Dr. Williams.

4. Join twelve-step support groups that discuss money-related issues including Debtors Anonymous, Spenders Anonymous, and Gamblers Anonymous.

5. Improve your financial literacy and learn how to make informed financial decisions by using resources provided by the Consumer Financial Protection Bureau, a U.S. government agency.

It’s never too late to work towards healthy financial habits and it’s equally as important to ensure our children are well-versed and money literate.

Dr. Williams emphasizes that we can prevent transferring financial trauma to our kids by addressing our own trauma. “Our kids pay attention to what we do with money and that influences their own money habits. We can start having conversations with them about money. For instance, talking about working for money, using money for our wants and needs, and ways we can give to others. Healthy financial habits start in childhood and we as parents play a crucial role.”

This is something that Evans agrees with. “Talk to them about money and educate them in the fundamentals of personal finance. This is going to be paramount in giving future generations a stronger head start. Unfortunately, we don't have nearly as much control as we want to believe we do and we can't guarantee we are preventing financial trauma, but we can fortify a solid foundation in their lives by being financially stable, educating them, and hopefully starting them off the best we can.”

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  1. Lin, J. T., Bumcrot, C., Mottola, G., Valdes, O., Ganem, R., Kieffer, C., Lusardi, A., & Walsh, G. (2022). Financial Capability in the United States: Highlights from the FINRA Foundation National Financial Capability Study (5th Edition). FINRA Investor Education Foundation.

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