How To Deal With Financial Trauma

Stressed out about money? Does thinking about the mounting bills drive you into bouts of denial? Do you dread paying the bills because it’s hard watching all that hard-earned money leave the minute in hits your account? You’re not alone…..

May is Mental Health Awareness month. I know this is a little late to post but I wanted to recognize this. This article will go thru what is financial trauma, how our emotions play into it, and what can be done to move past it.

What is Financial Trauma?

From this article in Forbes, financial trauma is a dysfunctional reaction to chronic financial stress. The symptoms present themselves like those who experience post-traumatic stress disorder (PTSD).

Financial trauma is the physical, emotional, and cognitive deficits people experience when they cannot cope with either abrupt financial losses or the chronic stress of inadequate financial resources.

Financial trauma can be debilitating and hinder a person’s ability to carry out normal life functions. Symptoms are like PTSD and can include:

  • Lack of focus and concentration
  • Nervous energy, jitteriness, insomnia, hyper reactive to basic situations, irritability, explosiveness
  • Negative thought patterns and fears of failure regarding the handling of money
  • Sensing that bad things are inevitable (i.e. waiting for the “next shoe to drop”)
  • Use of coping mechanisms become more prevalent (i.e. avoidance, heightened nervousness / anxiety, substance abuse, etc.)
  • Questions own financial security
  • Inability to feel close to friends & significant others (distant) as well as difficulty enjoying things that should be enjoyable

While financial trauma is similar to PTSD, not having enough money is a different kind of stress. This type keeps our physiology amped 24/7. Without recuperation, these stress hormones chip away at our immune system over a long period of time.

Long-term financial stress can end up as heart disease in one person, diabetes in another, and psychiatric problems in another.

It is easy to think that a person suffering from financial trauma is a lone, isolated case. It is not, in fact, it is more common than people realize. According to recent data in this article from, 23%of adults and 36% of millennials suffers from financial trauma.

When our minds are locked into this state of trauma, it is extremely difficult to face the financial reality much less cope with it.

I can vouch for this first-hand. When our financial situation was dire, my wife had a tendency to avoid any discussion around money. She would go into what I call, “ostrich mode”. She literally would bury her head in the sand hoping the problem would go away. Out of sight, out of mind.

When I tried to pin her down to discuss our money situation, she would react frantically even violently to me.  It was not a good situation. I empathize with anyone who has gone through it.

What Causes Financial Trauma?

Financial trauma is caused when expenses outweigh income for a long period of time. It is not a single episode that causes the trauma but the duration for which it exists. One month of falling behind on bills turns to six months. The emergency fund is drained dry.

Basic necessities like food and housing become difficult to sustain so requests for help go out to family and friends. This adds to the embarrassment of the situation and can augment the fear of inadequacy and paranoia a person can experience. Pretty soon, the situation snowballs and starts to spiral out of control.

Our body’s natural reaction is to go into survival mode. When in survival mode, the fight or flight response is initiated. Evolution programmed us for short term bursts of this reaction. The stress from not paying our bills puts this system into overdrive 24/7. There is no downtime to recover.

Not only can financial trauma cause stress but emotional and physical trauma can also cause stress. This stress can impact a person’s relationship with money and potentially exacerbate financial trauma.

Sounds weird? Check this out……

From this article, Adverse Childhood Experiences (ACE) are defined as childhood experiences that cause traumatic effects. Examples include:

  • Abuse / neglect
  • Death of a parent
  • Substance abuse in the home
  • Parent / guardian mental health struggles
  • Parents being imprisoned
  • Poverty

These experiences lead to many health issues later in life such as:

  • Depression
  • Suicide
  • Obesity
  • Substance abuse
  • Difficulty forming healthy relationships
  • Chronic health issues (i.e. cancer, heart disease, diabetes, etc.)
  • Financial struggles

Also “traditional” PTSD such as warfare, assault, or a devastating accident can impact the function of the brain in a similar fashion.

It is well known that prolonged stress changes the way the brain develops. The heightened stress hormones cause increase inflammation and hinder development of higher brain orders.

The change in brain development along with a lack of treatment results in risk-taking behavior and maladaptive means of coping with stress and trauma. It can lead to both cautious and risk-taking behavior depending on the person and their respective coping mechanisms.

For example, veterans exposed to combat tend to be more cautious with their money and investments.

Yet, people who have been exposed to parental abuse may indulge in compulsive or destructive behaviors such as impulse shopping, racking up huge amounts of credit card debt, or even substance abuse to self-medicate away their emotional pain and suffering.

Other effects of trauma on a person’s finances and money management is numerous. People who have experienced trauma may struggle to hold a job and provide stable income. Others may use maladaptive coping mechanisms to purchase unhealthy items such as cigarettes, drugs, alcohol, gambling, junk food, etc. Impulse spending on clothes, shoes, sports cars, hobbies, etc. can impact the ability to pay for other life expenses as well as impede the ability to save for retirement.

Let’s dig further how people react to financial trauma……….

Reactions to Financial Trauma

There are typically 5 types of financial reactions or coping mechanisms to financial trauma

  • Overspending
  • Underspending
  • Underearning
  • Overworking
  • Perpetual Debt Accumulation

Reactions to Financial Trauma


Overspending can make a person feel in control of the situation and is a way of self-medicating. This is the most typical and most damaging response to financial trauma.

For example, I know of individuals who had very abusive parents growing up. To feel in control and centered, they shop… a lot. They are always the first ones to buy their kids or friends things they “think” is needed.

An emotional void is trying to be filled with the purchase of tangible things. The impression is they are doing it to be nice but, in reality, they are self-medicating.


The opposite of spending too much money to self-medicate is not spending enough money on the things needed. Underspending is linked to deprivation. When people deprive themselves of something, they think they do not deserve to have them. They are not worthy of it. Trauma can have this kind of effect on someone.

These people tend to believe the world is an unsafe place. They save to the extreme thinking it offers protection, like a shield, from the “dangerous” outside world. They will save and hoard virtually anything (i.e. money, clothes, old magazines, etc.). Saving is their self-imposed “wall” to the outside world.


This is when people who are highly talented, educated, or capable work jobs that they appear extremely overqualified for. Think a person with an MBA from an Ivy League school working as a janitor at an elementary school (I know, I know this is extreme but just trying to prove a point😊).

The reason for not pursuing these positions is because the person does not feel deserving of it. Deep down, they do not feel worthy of the job. They don’t feel like they are good enough even though they have proven otherwise.

Trauma, especially emotional abuse as a child, could be one of the causes for this feeling of inadequacy.


The person who overwork cannot stop working since it is the only way they feel valuable. This person derives value from “bringing home the bacon” and providing as much income as they possibly can.

The downside to this is that satisfaction is very elusive. This type of person never seems to have enough. They do not know what contentment feels like since they always want more. The void is never filled so they strive to work harder to achieve even more.

Perpetual Debt Accumulation

This behavior is closely linked to overspending. While owning tangible goods can be used as a substitute for proof of worth, it lends to reaching outside of your means to do it.

The irony is that deep down this person does not believe they deserve wealth so debt accumulation sabotages it. Just when they think that a turn for the better occurs, more debt accumulation occurs wiping out the gains made.

The debt burden then reinforces the negative beliefs and a vicious cycle is created.

The Way to Recovery

For those suffering from financial trauma, fear not. There is hope and a way out of the vicious cycle.

Financial Trauma

Understand the Reasons for Behavior

The first step to any mental, emotional, or financial recovery is awareness. Being aware of the triggers to emotional problems helps to quantify the problems and empowers you to not let the same negatives events continue.

Being self-aware takes some practice. It helps to find a quiet activity (i.e. walking in the woods, sitting near a lake, etc.) to allow your mind to relax and open up. When this happens, try asking yourself questions about your current behavior and the reason for it occurring. Questions that could be asked include:

  • How Am I Feeling Right Now?
  • What is causing my reaction? Why did I react that way?
  • Why do I feel the need to buy or hoard this?
  • Is it really needed?
  • How does buying it make me feel?

Asking questions enables empowerment over your money.  The more it is practiced, the more aware you will become. The biggest things to remember is that there is always a choice and understanding the reasons for the choice leads to anxiety reduction and increased self-awareness.

Regain Your Inner Strength

Overcoming trauma can be achieved by engaging in empowering activities. Take action to make a positive change in your life. For example, if you are good at riding motorcycles, join or create a motorcycle riding club. If good at painting, continue this as your hobby.

By surrounding yourself with activities that reinforce positive feelings of your self-worth, your inner strength and confidence can be regained. Changing the surroundings to change the behavior can also put a person on the road to regaining inner strength and confidence.

Another way to regain inner strength is to surround yourself with people who are a positive influence. People suffering from trauma sometimes surround themselves with negative influences that further reinforce and exacerbate the problem. Ask anybody who goes to AA, sometimes the road to recovery involves changing the influential people in your life.

Another way to regain inner strength is to take positive, actionable steps to improve finances. Evaluate current coping mechanisms to find a more acceptable substitute.  Are you stress eating? Drinking too much? Self-medicating? Figure out if these are occurring and getting in the way of taking action. If it is in the way, change it. Take really small steps in the right direction (micro habits). Build confidence by achieving these micro goals and then challenge yourself to do more. Once momentum builds up, it’s like a runaway train that can propel you back on track to success.

Seek Professional Help

Still struggling even after taking steps to improve awareness and create positive action steps? Seek professional help. It’s ok to ask for help. Professional athletes hire personal trainers and performance coaches all the time. Why should getting your financial house in order be any different? Now this is not hiring a financial planner but a financial therapist.

How is this different?

Financial therapy (aka financial psychology) is a newer field that combines the emotional support of a psychologist with the money mindset of a financial planner. This help can allow people to begin the processing of their underlying feelings about money while at the same time working on a plan to get their financial house in order.

Financial therapists work to lessen the stress of the client and help them to develop a healthy relationship with money. Financial therapists can also help couples overcome inherent differences in money management, spending habits, and enabling the couple to work as a team.

If you feel anxiety about money or have unhealthy behaviors towards money, exploring financial therapy might be right for you.

I did some research and there is a plethora of online resources available to use. Here are a few examples:

Financial Therapy Association (FTA)

The Financial Therapy Association (FTA) is a website that can be used to begin the search for a therapist. Like choosing any therapist, shop around to find the right fit. Someone that is relatable, trustworthy, and understands you.

The FTA website has a financial therapist tool that can you help with your search. It not only lists therapist candidates but also their credentials and specialties.


Talkspace is another option. You can book telehealth appointments and stay on track with your therapist remotely. It starts with taking an online assessment to find the right fit. Then Talkspace helps to find the therapist, pick the support plan budget that is right for you, and start counseling all from the comfort of your smartphone.


Hope4USA is a credit education and restoration program. While not necessarily a therapist, they can help setup a financial plan to restore damaged credit, revive damaged egos, and offer education services as well.

EMDR Therapy

Eye Movement Desensitization Reprocessing (EMDR) was originally developed to relive trauma-induced stress from victims of combat, car accidents, and physical abuse. During therapy sessions, a person relives the triggering experience in brief doses while the therapists directs the eye movement. EMDR is thought to be effective for reducing the effects of trauma. The events tend to be less emotionally upsetting when a person’s attention is diverted.

While this may seem extreme, everyone is different. I have seen people’s relationship and trauma triggered by finances that remind me of seeing victims of combat PTSD. With the help of a therapist, the therapy helps people to identify why the spending of money makes them feel the way they do. Once people understand why they do what they do, they can begin to embrace alternatives.

If it can work for you isn’t it worth it to consider?

What to Do Now?

Ever feel stressed out over money? Does your stomach get queasy or you have a migraine every time a new bill appears in the mail? You may be suffering from financial trauma.

I know what it’s like to be constantly stressed out over money. I lived that nightmare for years. I managed to find self-therapy that worked for me.

Finances are not the source of the issue. An underlying problem exists that is manifesting through the relationship with money. The key thing to remember is to become aware that there is a problem, take actionable steps to resolve the problem, and then seek out additional help if needed. You’ll be glad you did…… 😊

Until next time…..

Live the Life You Love, Want, and Deserve! 😊