Trauma, especially in childhood, can have a lingering impact on a person’s physical, financial, and emotional wellbeing. This is true whether the trauma comes from singular extreme events or chronic lesser stresses. Any type of trauma, financial or not, can play out in your relationship with money. The result can be financial anxiety, underspending, overspending, and all sorts of financially unsound decisions and financial disorders.
Financial trauma can be associated with eight general types of money events: giving, receiving, spending, saving, loaning, borrowing, earning, and taking money. Generally speaking, if there’s a sense of shame around any of these, it could be a sign of some past financial trauma.
Giving Money. Giving out of guilt, shame, manipulation, or obligation can be traumatic. If you were raised being continuously guilted, shamed, and manipulated into giving, you could have trauma around giving.
Receiving Money. A gift can be a wonderful thing, an act of generosity expressing care and appreciation. When a gift comes wrapped with strings, it ceases to be a gift. The strings could include a lot of guilt and manipulation or expectations of reciprocity or future favors. If this happens repeatedly, it can be a source of complex financial trauma.
Spending Money. Money that is never spent is pretty useless. It’s not going to support our needs, our goals, our dreams, or make life worth living. Spending is a way we can support our physical, financial, and emotional wellbeing. But money that is spent in ways that don’t align with our values or our best interests can cause a lot of internal dissonance, stress, depression, and unhappiness, which can feed and become trauma. The same is true of money that’s spent as a result of guilt, shame, manipulation, coercion or obligation.
Saving Money. We need to save and invest in order to be able to spend in the future when we don’t have a source of income. So saving is a way to enhance our overall wellbeing. But accumulating money out of fear, obligation, or a need to measure up can be associated with trauma.
Loaning Money. Lending as a form of investing, such as bonds, can be traumatic in the event you lose money, particularly during a time like 2008 when some A-rated companies failed. But I think the biggest source of financial trauma in this area is typically around loans to family or friends. These often have emotional strings attached, and both the lender and the borrower often overlook the importance of paperwork security, setting clear repayment terms, and assessing the borrower’s credit worthiness. Tons of emotional stuff are involved in lending money to friends and family. The best advice is don’t do it, because it can be very traumatic to relationships.
Borrowing Money. A lot of financial trauma can come from being unable to pay your debts. This is true whether the cause is poor financial choices like overspending or external causes like a job loss. The issue isn’t being in debt, it is shame around not being able to make your payments. Even worse can be consequences such as property being repossessed or a bankruptcy. I have had a number of clients whose parents went bankrupt when they were children, and that experience was definitely traumatic to them.
Earning Money. Where is the trauma around earning money? That’s how we sustain ourselves; it’s a source of self-esteem and freedom. Yet, when you’re underemployed, it can be traumatic when you’re working for far less than what the value of your services are. This is not unusual for people who are self-employed. There can also be trauma around being over-employed. If you’re in a job that you hate, or in a toxic work environment, but the pay is high, you may feel stuck. You can also earn money with strings attached: unwritten expectations, coercions, exploitation, and manipulation all can be associated with a paycheck, bonus, or other earnings.
Taking Money. I’m not sure there’s an upside to taking money. To me, taking involves shoplifting, embezzling, cheating on taxes, robbery, and other forms of stealing money that rightfully belongs to another person. Trauma around taking money can stem from even a small incident. I’ve worked with clients that took a nickel from somebody in high school or junior high and they still felt shame around that decades later.
Trauma that affects your financial wellbeing is not limited to major events. It doesn’t really matter how seriously you might view the event from your adult self today. Telling yourself, “It wasn’t a big deal,” or “I shouldn’t feel this way about something small,” is not helpful. It only piles shame on top of shame. If something had a huge impact on you as a child, it could be a source of financial trauma that is driving a financial behavior that may seem illogical to you. Just remember, that apparently illogical financial behavior makes perfect sense when you understand what is behind it. What is overwhelming or traumatic for one person may not have at all the same effect on another person.
Check out The Financial Therapy Podcast by Rick Kahler concerning this topic.