What Is Financial Trauma?

Advisor July 14, 2023

Financial trauma refers to the psychological and emotional distress individuals experience due to significant financial difficulties or traumatic financial events. It can result from job loss, bankruptcy, foreclosure, overwhelming debt, or other financial crises. Like any other form of trauma, financial trauma can have a lasting impact on a person’s well-being and relationship with money.

Understanding Financial Trauma

Financial trauma goes beyond the immediate stress of financial difficulties. It can cause feelings of fear, shame, guilt, and powerlessness. Individuals may experience a sense of loss, grief, or betrayal as they grapple with the consequences of their financial challenges. The impact of financial trauma can extend to various areas of life, including relationships, self-esteem, and mental health.

Erin Eatough/ Betterup | Having both mental wellness and financial health is mental wealth

Effects of Financial Trauma

Emotional Impact

Financial trauma can lead to a range of negative emotions, such as anxiety, depression, and a sense of hopelessness. Individuals may constantly worry about their financial situation, experience difficulty sleeping, or have intrusive thoughts related to money.

Relationship Strain

Financial trauma can strain relationships, including marriages, friendships, and family dynamics. The stress and tension caused by financial difficulties may lead to conflicts and a communication breakdown. This strain can further exacerbate feelings of isolation and distress.

Self-Esteem and Identity

Financial trauma can significantly impact an individual’s self-esteem and sense of identity. People may feel a deep sense of failure and question their worth and capabilities. This can create a cycle of negative self-talk and reinforce feelings of shame and inadequacy.

Avoidance and Fear

Individuals who have experienced financial trauma may develop a fear of financial instability or avoidance behavior when it comes to managing their finances. They may avoid checking their bank accounts, delay bill payments, or become overly frugal even when their financial situation improves.

Addressing Financial Trauma

Olivia Burton/ Dreamstine | With the right support, resources, and coping strategies, individuals can recover from financial trauma

Seek Support

It is crucial for individuals experiencing financial trauma to seek support. This can include talking to trusted friends or family members, seeking professional help from therapists or financial counselors, or joining support groups where they can connect with others who have faced similar challenges. Supportive networks can provide emotional validation, practical advice, and a sense of community.

Self-Care and Emotional Healing

Engaging in self-care activities is essential for healing from financial trauma. This can involve practicing relaxation techniques, engaging in hobbies, exercising, or engaging in activities that bring joy and promote well-being. Prioritizing emotional healing through therapy or counseling can also help individuals process their emotions and develop healthy coping mechanisms.

Financial Education and Planning

Financial literacy and understanding can empower individuals to take control of their financial situation and rebuild their confidence. Educating oneself about personal finance, budgeting, and money management can help develop practical strategies to address financial challenges and set achievable goals.

CHARLES BRESLER/ iStock | Financial trauma can evoke a range of emotions, including anxiety, fear, shame, guilt

Gradual Exposure and Building Trust

Gradual exposure can benefit individuals who have developed avoidance behaviors related to their finances. Start by taking small steps to engage with financial tasks and gradually increase involvement. Building trust in one’s ability to manage money and make sound financial decisions is gradual, but it can be achieved with patience and perseverance.

Set Realistic Goals and Seek Professional Advice

Setting realistic financial goals is crucial to avoid feelings of overwhelm and frustration. Seeking professional advice from financial planners or advisors can provide individuals with expert guidance tailored to their specific situation. They can help create a customized financial plan, provide insights on debt management, and offer strategies for long-term financial stability.