How to deal with financial trauma

Rahkim Sabree owns a home in Hartford, Connecticut, invests and has savings. But that’s not always enough to make him feel safe. Unexpected expenses, regardless of cost, cause him discomfort.

“I get very anxious when I have to spend money,” Mr. Sabree, a 33-year-old financial coach and advisor, said. This sometimes causes him to put off paying for necessary things, such as new shoes or household repairs.

During his teenage years, Mr. Sabree, who is black, lived with his family in subsidized housing and paid for his groceries with food stamps. “When it got really bad, we were without electricity and water,” he said. More than once they were almost kicked out. It was embarrassing to see an eviction notice on the door, Mr. Sabree recalls.

Those experiences shaped the way he spends and saves. Feeling in control of his money brings peace of mind, Mr. Sabree said. But when that control slips away, fear creeps in. “It feels like something is happening to me, rather than me making something happen,” he said.

Experiences like Mr. Sabree’s can lead to some financial psychologists’financial trauma— an intense and lasting emotional response to current or past financial problems, he said Alex Milkumianpsychologist and founder of the Financial Psychology Center in Los Angeles.

Financial trauma can trigger negative thoughts, flashbacks, and anxiety — symptoms that reflect post-traumatic stress disorder or PTSD. Unlike everyday stress, trauma does not wax and wane. It ultimately damages your relationship with money, said Thomas Fapa financial therapist in San Francisco.

Common causes of financial trauma include medical debt, financial insecurity, and an economic crisis. For example, survivors of the Great Depression were less inclined to invest in the stock market because they feared another crash, which would hurt their retirement savings.

Trauma can also cross generations in different ways, such as inheriting debt from your parents. Dr. Melkumian added that systemic issues, such as racism and discrimination, may also play a role.

Unlike PTSD, financial trauma is not a mental health diagnosis, so financial advisors and therapists often overlook it. Many people are never told that scary experiences with money can damage their financial and psychological health, said Mr. Faupl. Nevertheless a 2016 questionnaire found that 25 percent of Americans, including 36 percent of millennials, reported symptoms of PTSD caused by financial problems.

Recognize stress signals

A telltale sign of financial trauma is avoidance of money, said Dr. Melkumian. In other words, some traumatized people may refuse to budget, open their accounts, or discuss their finances.

Avoidance can also mean neglecting to spend when you should. For example, Mr. Sabree often attributed his behavior to frugality. But he realized that his choices, as opposed to saving for a rainy day, were sometimes motivated by a desire to avoid poverty one more time.

Any painful experience with money can make you feel unsafe, said Aye Evans, a financial therapist in New York City. This often leads to negative thoughts, she explained, such as “I’ll never have enough money” or “I’ll never be good with money.”

Overspending can also be evidence of financial trauma. You could try to compensate for the feeling of deprivation as a child by overindulging yourself as an adult. For example, you may waste your savings on a vacation, eat out too much, or spend all your money on online shopping.

Chantel Chapman, a 40-year-old entrepreneur in Richmond, British Columbia, was once a spendthrift in this way. For nearly a decade, she bought gifts, outfits and dinners she couldn’t afford, she said. This left her with nearly $10,000 in credit card debt and $10,000 in tax debt, stunting her savings.

Like Mr. Sabree, Mrs. Chapman grew up without financial security. But while Mr. Sabree’s financial trauma made him frugal, Mrs. Chapman’s resulted in overspending.

“I had a skewed relationship with money,” she said. Ms. Chapman said she feared debt, but her desire to belong to a wealthier crowd had caused her to spend beyond her means. Trauma turned her into a people pleaser, she said, adding, “I thought I had to look a certain way to be accepted.”

Sabotaging your financial future is another danger signal. You might believe that having a high-paying job makes you selfish or is something you don’t deserve, Mr Faupl said. As a result, saboteurs may refrain from applying for a higher-paying job, or they may never ask for a raise.

Once you can recognize the signs of financial trauma, you can work on a solution. To begin with, try to examine the “problem through the window of money,” Mr. Faupl. From this point of view, ask yourself, “What should I do to address my financial situation?”

Watch out for triggers

Any thought, feeling, or memory associated with the trauma can cause distress. For example, if you lost money during the 2008 financial crisis, seeing the stock market fall may cause anxiety. Or if you’re saddled with student debt, the end of the payment break can be nerve-wracking.

“It can feel like watching a scary movie all over again,” says Michelle Griffith, senior wealth advisor at Citi Personal Wealth Management.

Ms. Griffith has seen a resurgence of financial trauma in some of her clients. In 2009, some people lost up to 40 percent of their retirement savings. Now, with the possibility of another recession, they worry about a recurrence. This can make people fear the risks associated with investing, Ms Griffith said, forcing them to cash in on their investments or retirement accounts too quickly.

When the emotional tide is high, Ms. Griffith recommends guiding decision-making by facts. “Even bear markets are recovering,” she said. And for the past 70 years, the stock market has fallen by 5 percent several times a year. Knowing that dips are temporary can help ease the sting, Ms Griffith said.

While no one can predict the future, being able to recognize your triggers puts you in a better position to take care of yourself, Ms Evans said. Even taking a few deep breaths, walking or talking to a friend is calming, making you less likely to resort to impulsive actions, she said.

Set financial boundaries

Boundaries help us feel safe in relationships, and they can also control our financial behavior.

For example, Ms. Evans recommends that overspenders remove credit cards from apps and online stores. The excitement of a purchase creates a dopamine rush, which can hinder your self-control, she said. But if your credit card isn’t handy, it’s harder to enjoy.

People who avoid money may take small risks, such as pushing themselves to spend $10 or $20 on a joyful experience. Dr. Melkumian calls this “compulsory spending” and said it was a way to get out of your safe zone. It does the opposite of what the negative emotion tells you to do, he said.

Any behavior that intercepts avoidance is also beneficial. Ms. Griffith suggested automatically transferring money from your checking account to your savings each month. You can also automate your monthly bill payments and allocate money from each paycheck to your retirement account.

Find support

Recovering from financial trauma is a two-pronged approach. You have to address both the financial aspect and the trauma it has caused, Mr Faupl said.

Talking to one financial therapist specializing in financial trauma is the first step. With a background in psychology and money, the financial therapist can help you understand the relationship between your painful experience and your financial problems. For example, if your family had a fight about money when you were a kid, Mr. Faupl said, you might avoid difficult financial conversations as an adult. Or if you grew up without financial security, you may be hoarding money later in life.

In addition to therapy, taking a financial literacy course or speaking with a financial advisor can put you on the road to success.

As part of her recovery, Ms. Chapman turned to psychotherapy and financial education. However, none of her therapists made the connection between her trauma and money problems. She was told to exercise willpower, which caused more embarrassment, she confessed. Hoping to educate others, Ms. Chapman co-founded the Money traumaan educational site that provides financial trauma literacy classes.

Mr. Sabree also strives to help others, especially those in the black community, develop healthier financial habits. In his personal and professional experience, financial trauma never really goes away.

“It’s not like turning off a light switch,” he said. It cannot be erased, but you can work through it.