How Trauma Can Affect Your Financial Health

Posted on April 30, 2022 by Edna White, One of Thousands of Life Coaches on Noomii.

Child abuse. Warfare. Domestic Violence. Assault. A devastating accident. Loss. Divorce. If you have endured one or more life-threatening events, you may be more likely to make destructive money decisions.

Researchers discovered that post-traumatic stress alters the way a person thinks and reacts to situations, including financial behavior.

If you are making negative money choices, especially those hurling you into arrears, and you believe it might be due to past trauma, there are ways you can change course.

Traumatic events can lead to compulsive and destructive economic behaviors. The root of this phenomenon, he says, is the impact that trauma has on the brain.

According to Psychology Today, these are not conscious, deliberate actions. Traumatic experiences cause our brain to overreact. They force us into a stress mode where we are compelled to take action as a protective measure.

In my work as Life Development Coach I see too often how people utilize money and the objects it buys to self-medicate away the emotional pain that is left in the wake of their trauma. Oppressive credit card debt is very frequently one of the destructive consequences of their unfortunate legacy.

As a pre-teen, I had been exposed to domestic violence. I always heard my parents always screaming and fighting. And it was always about their finances and how it was spent. Well, as a practice I used to hoard my money and not spend it at all.

So while I, who experience the trauma of the arguments when money was spent I shunned the risk, while others who have suffered through different kinds of trauma may respond by being spendthrifts.

I’ve seen too often how people utilize money and the objects it buys to self-medicate away the emotional pain that is left in the wake of their trauma.

Initially, I would do odd jobs just be calm myself and taking that money putting in a box safely tucked away felt good. As problems at home continued, I saved more. So there’s a direct relationship between the trauma and the activity, but as an adult, I didn’t see the connection right away.”

As a real estate broker for 19 years, I have come across people on almost a weekly basis who have financial problems due to traumatic circumstances.

Several years ago, I was helping a man to rebuild his credit after his wife was killed. Naturally, he had unexpected financial expenses from the funeral and decreased income from missing work while he was grieving. However, he also began to use shopping and overspending as a way to temporarily cover up his grief. There is a reason that it is called ‘retail therapy.’ His home was full of “things”.

Trauma may lead a person to use money and objects to self-medicate emotional pain. It can lead to excessive spending, excessive saving, over-working, or perpetual debt. It may have led to self-esteem issues that convince you that you are not worthy or deserving of wealth which leads to sabotage with overcharging.

It can lead to impulse purchases made to fill an emotional void or to soothe emotional triggers. The problem becomes that the burden of debt often reinforces negative beliefs, which the spending was supposed to diminish. It creates a vicious cycle of stress, spend, debt, stress, and spend.

We live in a materialistic society and, now, shopping is literally at your fingertips with technology such as Amazon.

It is very easy to go overboard with your shopping habit and hide it from other people. It even has a name. Some playfully call it, “retail therapy.”

Shopping or creating debt can become a coping mechanism for someone who has suffered emotional trauma.

If you ever watched the show, Hoarders, the people who were excessively shopping or collecting materials could often link it back to some type of traumatic experience.

The loss of money itself can become a trauma that triggers PTSD (Post-traumatic Stress Disorder). Losing a job, foreclosing on a home, filing bankruptcy or suffering a life-changing illness are all traumas that can involve the loss of money. Poverty itself is a traumatic experience. Constantly worrying about money or how your bills will be paid causes the nervous system to remain in a heightened state of stress.

This trauma or PTSD can lead to making negative decisions with your money either to alleviate the emotional pain or in avoidance of the circumstances. It can also lead to being risk-averse and more cautious in your financial investments. This means, where you need to take chances to increase your net worth, you may choose to be conservative out of fear of future loss.

The first step is awareness. If you know you have suffered trauma or feel that you may be suffering from a negative life event, understand that it is okay to not be okay. And, there is no shame in seeking out or receiving therapy if it can help you to handle what you have endured.

The next part is to accept that a traumatic life event has changed your relationship to money. However, identifying deep-seated issues can be challenging. The mind often buries trauma in an effort to protect our psyche and allow us to continue to function at the level necessary for daily life.

The easiest way to figure out if something is wrong is if something feels wrong.

If you feel the compulsive need to shop for things. If you find that you have duplicates of things that you don’t need in your closet. If you recognize your own fear and how you reach outside of yourself to purchase something to calm your nerves. If you are treating yourself more than you are caring for your needs, you may have money trauma.

It might be time to look at what is driving that compulsion. Do not feel ashamed.

It is normal for financial issues to follow when your life is turned upside down by an accident, job loss, or emotional loss. But, it doesn’t mean that you have to stay stuck there.

Under-earning. You may be highly educated, talented and capable, yet do not pursue or keep positions for which you are worthy because you feel undeserving.

Over-working. You can’t stop working because the only way you can feel of value is by bringing in as much money as you can. Satisfaction is elusive, though.

Perpetual debt. Owning tangible consumer items is proof of worth (when you may not feel it).
Therefore, you reach for things outside yourself and your means. You might also believe, deep down, that you do not deserve wealth, so sabotage it with overcharging.

Excess spending. Shopping makes you feel in control and centered. When the trauma is triggered, you shop to self-medicate.

Excess saving. The opposite side of the coin is hyper-vigilance. You consider the world to be an unsafe place, so protect yourself by hoarding possessions or money.

Uncontrolled shopping is the most typical — and most damaging.

While spending may provide relief from the emotional injury of trauma, it often creates unmanageable debt, the relief may be short-lived. The burden of debt eventually reinforces negative beliefs that spending diminished, creating a vicious cycle.

I do agree firsthand that the abuse and mistreatment of money after a trauma is a common coping mechanism: When a person’s world gets turned upside down, especially by a sudden illness or accident, financial and credit problems are usually not far behind.
The products and services are used for easing the feelings associated with the negative emotions and may be used to fill an emotional void.

Can you stop such negative, compulsive responses? Yes. Crucial to getting your dignity and esteem back is realizing and accepting that a traumatic event has changed the way you deal with money. Yet pinpointing deep-seated issues can be elusive.

It has been scientifically proven neurologically, we defend against uncomfortable truths. Knee-jerk denial is normal. After all, you might not want to accept that you keep yourself in debt or unemployed because something terrible happened to you. Instead, you want to believe that it’s all due to separate, outside factors.

Several psychotherapy methods can help you differentiate between conscious, healthy financial behaviors and harmful ones triggered by the event. The standard approach is cognitive therapy, which is based on the assumption that thoughts, feelings, and behaviors are interconnected.
With a therapist, you isolate the origin of your inaccurate thinking, determine the emotional response, then work to form new, positive behaviors. We help people identify why the spending makes them feel better and once people understand why they do what they do, they may embrace alternatives.
With professional guidance or even with just a mighty will to change, you can switch gears. I recall a few clients that came to me and shared their trauma or lose, they came back ready to deal with the financial fallout of the trauma. They wanted to be in a better position so he could buy a home for himself and his child. We were able to help him, but it took about six months of hard work to correct the mistakes of his past.
Ultimately, you must train your brain to believe in you. If you sense you have a problem, there is a 99 percent chance it’s true. Trust that feeling and seek proper care to address the issues.
What to do now
In the absence of formal therapy — or before seeking it — you can try to redirect the feelings of powerlessness into other activities. Do things that restore a sense of importance, I suggest physical exercise, reading, artwork or socializing with friends as examples of positive ways to redirect spending urges.
Even the process of budgeting can restore a sense of power. It’s a simple defense against irrational, destructive economic choices.
If you suspect a traumatic event is behind your consistently poor financial decisions, check-in” on your emotional state. Awareness breeds strength and the opportunity to make better decisions. When emotional triggers cause you to make purchases you don’t need or can’t afford, you give your power away to someone or something else.
Prior to shopping or charging, ask yourself the following questions:
How do I feel right now?
What is causing me to react this way?
Why do I feel the need to buy this?
Do I really need it?
How will I feel after I buy it?
How will I feel when I have to pay for it?
It’s self-generated cognitive therapy, helping you connect the cause-to-action dots. Frequently asking and then answering them will guide you to make deliberate, healthy actions not based on past hurts, but on present needs and sensibilities.
You don’t have to let a traumatic event continue to haunt you or harm your economic security. By making a choice to not react to them, you will help yourself to create a prosperous financial future for you and your loved ones.