4 Signs of Financial Trauma and Steps for Resolving It

The way you interact with money could be informed by individual or collective trauma.

Interacting with money is a fact of life, but that doesn't mean it's easy. In fact, personal finances, as "facts and figures" as they may seem, can come with a lot of emotional baggage. While some people have been privileged to never have to worry about money, many others are used to associating money with stress, a lack of security, and even feelings of unworthiness.

These negative relationships to money—formed by anything from childhood experiences to long-term debt in adulthood—can be connected to financial trauma, which can, in turn, inform and hinder the ways that people interact with money in daily life. We talked with experts to learn more about financial trauma, what it can look like, and the steps you can take to resolve it.

What Is Financial Trauma?

Dr. Galen Buckwalter, a psychological research scientist and chief science officer at Happy Money, is one of the leading experts on financial trauma. In 2016, he led a study on the links between personality and financial behaviors. He ended up finding that nearly one in four Americans and one in three millennials suffer from PTSD-like symptoms caused by financially induced stress.

As the study shows, the people experiencing these symptoms display destructive behaviors around finances (like avoidance and denial) as well as more traditional symptoms of trauma, like agitation, irritability, hypervigilance, self-destructive behavior, and isolation. But where is this trauma coming from?

Potential Causes

Debt and Financial Insecurity

"When we consider today's reality of stagnant incomes, limited savings and high amounts of credit card and other debt, along with frequent financial traumas such as defaults, evictions, and aggressive debt collection, these findings should trigger alarm bells for our society to address the challenges with debt millions are facing," Scott Saunders, founder and CEO of Happy Money, told Business Wire in response to the study.

Divorce and Other Life Setbacks

Chantel Chapman, co-founder of the Trauma of Money Method and founder of What The Finances, takes a trauma-informed approach to financial education and says it's crucial to look at financial trauma on both an individual and collective level.

When it comes to trauma in general, the most widely understood form is the kind that's caused by a singular traumatic event—a natural disaster, an assault, a car crash—and the same can be applied to individual trauma around money.

"A couple of examples of this would be living in poverty for more than a few months, or let's say you invested your entire retirement savings in some stock deal, and you lost it all, or maybe there was a divorce, and you ran into some challenges with your finances with your partner," Chapman explains.

Collective or Generational Trauma

We can also explore financial trauma from a wider lens. As Chapman explains, the trauma around money can also be generational, intergenerational, relational, societal, or systemic. These larger-scale forms of financial trauma might look like the scarcity mindset passed down from your parents or the societal pressure to over-consume.

Financial trauma, no matter the source, can have a debilitating or destructive impact on the way we interact with money, so it's important to recognize the signs and work to understand our own behaviors on a deeper level.

Signs of Financial Trauma

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Financial Avoidance

Financial avoidance is a big indicator of financial trauma, Chapman says. This could look like not opening bills, not interacting with bookkeeping as a business owner, or avoiding any and all conversations around finances. Connecting this behavior to trauma, and the commonly known fight, flight, freeze, or fawn response, Chapman says financial avoidance "can be a bit of a freeze," and "at its most intense level, it's dissociation."

This avoidant response makes sense for someone whose relationship to money is paired with intense feelings of fear, pain, or insecurity. However, when not addressed, this response can have a long-term impact on someone's financial health, negatively impacting credit score due to avoided payments or digging someone deeper into debt.

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Overspending or compulsive spending is another common response to financial trauma. This could look like anything from spending too much money on eating out or splurging on major purchases with money you don't have. For anyone struggling with overspending, Chapman says it's important to do some internal reflection and ask yourself why. "If you're [overspending] because you've had a stressed-out day, you may be doing that spending because you're trying to soothe pain or you're looking for an increase in dopamine."

This response can stem from the common narratives around money in dominant culture. "One of the core messages of consumerism is that if you ever feel bored or sad or lonely or inadequate, something's wrong with you and you need to fix it right away and you can do that by buying something or consuming, essentially," Chapman explains. "So we've got a lot of people who are constantly engaging with this narrative and are kind of playing into this dopamine addiction or treadmill of chasing pleasure to basically soothe pain or boredom."

In many ways, overspending can also be a form of financial avoidance, since consumption is a temporary way to deal with pain while avoiding the reality of finances.

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On the other hand, a severe lack of spending, even when the money is available, can also be a sign of financial trauma. Chapman calls this "excessive risk aversion," which can be correlated to mindsets of fear and scarcity around money. This could stem from someone having experiences in life where money was really tight, causing them to move forward in fear and trepidation.

Chapman says this excessive risk aversion can also commonly be seen in relationships in which two people come together who have had different experiences with money growing up.

Kiersten Saunders, the co-founder of Rich and Regular, had this exact experience with her husband. While Saunders came from a more comfortable financial background, she says her husband grew up in Brooklyn in the '80s and learned to think about money in terms of scarcity. "He was very tight with his money and worried about it always running out, and so he was very much afraid to spend," Saunders says on the Money Confidential podcast.

Because of this, Saunders says her husband has often navigated financial situations through this trauma response of excessive caution. "All of our old patterns tend to come out either before we hit a milestone or right after it, because achieving a financial milestone actually makes you rethink what's possible," she says. "And for him it triggers [this feeling that] he's waiting on the shoe to drop; he's waiting for the bad news that comes with [the good], like we're going to lose it all."

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Lack of Boundaries

Another example of financial trauma, Chapman says, is having a lack of financial boundaries or discomfort with setting boundaries around finances. "[This could look like] under-charging or under-earning, not negotiating raises for yourself, not making clear payment terms on contracts," she explains. "Or, I see this all the time, people will go into business with friends or other people, and they don't have clear contracts around the working relationship."

While it can be uncomfortable for anyone to navigate money conversations, a repeated lack of boundaries around finances "can be an indicator that maybe there's some trauma that is present that is prohibiting you to stand in your power and advocate for what you need in that relationship."

This relationship to money could stem from learned mindsets that put a cap on someone's perceived worth and prevent them from believing that they deserve more.

How to Resolve Financial Trauma


Financial trauma doesn't have to be a life sentence. In Dr. Buckwalter's review on his study of financial trauma, he says that one of the first steps to resolving this trauma is to simply talk about it. This is an approach that Saunders and her husband have become quite familiar with. "We've normalized talking about money, the same way we talk about a number of other subjects," she says. "It's not a taboo subject in our household."

They've also found ways to utilize their different money mindsets to benefit their joined relationship with finances. "Our version of teamwork is that he helps remind me of saving and making sure that we plan for money to not always be consistently coming in at the same rate for the rest of our lives, and I help him spend more and enjoy and use money as a tool to improve the quality of our life," she explains.

Self Soothe

At Trauma of Money, Chapman says her team uses a multi-step approach to resolving financial trauma. "Step one is so incredibly important and that is really to understand the state of your nervous system when the money issues are arising and then find ways that you can basically regulate your nervous system," she says.

So, if you notice that you get really anxious and worked-up when having to navigate financial situations, she recommends giving yourself the grace of acknowledging that response, stepping away to calm your nervous system down, and returning to your finances once you've arrived at a more emotionally regulated place.

Decrease Shame

At the center of Chapman's approach is also the goal of decreasing shame around financial behaviors. One way of doing this, she says, is to separate yourself from the narrative. "So if it's like, 'I'm bad with money or I'm horrible with money because I have credit card debt,' it's like, okay, where is this coming from? And how can you separate yourself from the narrative?"

Some of these negative beliefs tied to our financial behaviors are rooted in financial trauma—and they can be pretty convincing. So Chapman reiterates how important it is to remind yourself, "You're not the narrative, you are an innately worthy person that exists outside of the narrative."

After taking some of these steps to address the root of financial trauma and forgive ourselves for however it's manifested, "This is where we can get into more of an expansive state of really reimagining a new future for ourselves," Chapman says. "And then after that, we're now more supported to take action that we need to take."

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