Trauma and Financial Decision Making

financial decision-making trauma Jun 17, 2021

Many people have fear and anxiety when it comes to their finances.

For those who have a history of trauma, this can be far worse.

It can not only impact your relationship with money but can impact your financial decision-making.

Responses To Trauma

When someone experiences a traumatic event it can have a myriad of effects on the person's life.

The initial reaction to trauma can include anxiety, agitation, exhaustion, sadness, confusion, and physical arousal.

More severe responses to a traumatic event can include intense memories and continuous distress.

Delayed trauma responses can include nightmares, depression, avoidance of emotions and things associated with the traumatic experience, fatigue, and fear of recurrence.

Trauma In Childhood

When trauma is experienced in childhood it can have a more persistent impact on a person's life.

Often, because the trauma is from the distant past, the originating event is not generally remembered or referenced. Instead, the individual feels a general preoccupation or hesitation around subjects and things related to the trauma.

So if a child has experienced a trauma related to money, they may have lasting effects that go into adulthood around money.

Trauma Doesn’t Have To Be Big

Most people believe that traumas are always big incidents in a person's life such as childhood abuse. That a traumatic experience is always something like natural disasters or serious physical abuse or sexual abuse representing a complex trauma.

Unfortunately, that's not the case.

Most people have had traumatic events happen in their lives.

Researchers often call these events adverse childhood experiences
 
Adverse childhood experiences can include bigger life events like the death of a loved one or physical abuse or neglect. These types of events can be both an acute trauma (often sudden and short-term) or a chronic trauma (often longer-lasting). These bigger traumas can cause a wide range of Psychological symptoms and issues like Post-traumatic Stress Disorder,  depression, anxiety, or other mental disorders like dissociative disorder.
 
However, It can include simpler, more common experiences such as bullying, being shamed by a respected person for who you are or what you have, or even experiencing painful embarrassment at some point when you were young.

When you consider trauma through this lens it's easy to see that traumatic events have impacted almost every single one of us.

Regardless of the cause, trauma is a stressful event that can cause a significant emotional response and physical symptoms.

Trauma and Finances

Trauma does not have to be about finances specifically to cause a negative impact on your financial reality.

For example, if someone had a parent with cancer as a child and this caused financial stress in the family, the adult may have serious security issues around money as an adult. They may squirrel away money so that they're not caught unprepared should they ever fall ill or some other emergency happens.

On the other hand, if someone was constantly going without as a child and was bullied in school for not having new clothing or trendy brands then they may grow up into an adult who spends their money trying to prove their worth by having new clothes and trendy brands.

Or perhaps a child made friends with a wealthy child from school and their parents told them that they weren't allowed to hang out with them because “their parents steal food from your mouth”. The child's parents' belief about those who have money was impressed upon the child in a traumatic way that left a lasting impact. Then as an adult, the individual may fear making a lot of money because they feel it means that they're taking from other people.

Trauma and Fear

When a person experiences a traumatic event they also experience fear.

When they experience fear their brain begins to create adrenaline.

The body does this because evolutionarily this was an advantage.

The adrenaline would help you get out of a situation when you were in trouble - like being chased by a lion.  

However, in today's society, adrenaline isn't normally needed. Instead of getting us out of trouble it merely causes physical symptoms such as increased heart rate and blood pressure.

The fight or flight response gets triggered and often the person becomes afraid.

When the trauma isn't dealt with or its impact acknowledged this fear can arise again when similar circumstances happen later in life. 

Childhood Traumas Impact Financial Decision Making As An Adult

A child who was bullied may again get triggered by a boss who is scolding them for being late as an adult.

The child who was ashamed for not having the newest things may get triggered by other people having nicer things than they do.

These triggers will often cause the person to make decisions from the place when the trauma first occurred - childhood.

So the adult makes a financial decision based on the child's available coping mechanisms. This might mean running away from stressful situations, acting impulsively, or reacting more strongly than an adult would normally react.

So perhaps the first person storms out of their boss's office or impulsively quits their job to “protect themselves from the bully”, which is the way the inner child experiences the event.

The second person may go out and buy something even more expensive on impulse in order to not feel ashamed anymore.

It's obvious to see how trauma from the past can impact financial decision-making in the here and now.

These financial decisions, which are made from the part of you that's been triggered by an old trauma, then become a burden on building the financial reality you want.

How To Stop Trauma From Impacting Financial Decisions

The biggest thing you need to do to stop trauma from impacting your financial decisions is to become aware of the traumas which are causing you to make these decisions.

The first tool I use with all of my clients is The Family Money Tree . With this tool, they get to know the specific experiences which are impacting the way they behave with money today. They understand how their family and life experiences are impacting now so that they can begin to make new choices.

I highly recommend you get to know your original traumas which are triggering your financial decision-making.  Working with a mental health professional on your childhood trauma can help you make better financial decisions. Only then will you feel more in control of your finances and your life.

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