How To Start Addressing Financial Trauma, the Mental Health Phenomenon That Affects Your Financial Well-Being

Recently, I found myself sitting on the edge of my bed, panicking over the phone call that just ended. My boss saying the words “you’re just no longer a good fit” replayed over and over in my head. I had just been laid off, with no warning and seemingly no safety net. Bills, bills, and more bills lay piled on the table. How am I going to survive? I wondered.

At that moment, I recalled a previous conversation with my therapist. I had mentioned in a session how I was a workaholic and never really knew how to rest. Growing up in poverty, work was all I knew. I watched my family members work and so I followed suit. I never wanted to revisit having no money or bills not being paid. Instead, I traded in my time and well-being for cash. And yet with this layoff, I found myself back in that very position I had worked so hard to avoid.

While I’ve long known that my relationship with my finances was warped, I’ve struggled to put a name to this feeling. My therapist witnessed the effects that constant work had on my body and mental state. From there, we acknowledged that I’ve lived with what I know now to be financial trauma—and have continuously worked on a plan to help me see wealth differently.

What is financial trauma?

Financial trauma, a term recently coined and made popular by Galen Buckwalter, PhD, a psychological research scientist, describes a state of extreme stress and anxiousness people have towards their financial obligations. When working for Happy Money, a loan service start-up, Dr. Buckwalter reportedly recognized many people had a significant amount of fear surrounding paying off debt—to the point where they displayed symptoms of post-traumatic stress disorder (PTSD).

Financial trauma is a lot more common than we seem to think. A 2016 survey conducted by financial wellness company Payoff (with which Dr. Buckwalter was associated) found that nearly 23 percent of Americans (and over a third of millennials) struggle with some form of fear-based, financial-based trauma. In another poll conducted by the Associated Press and the University of Chicago in March 2023, 42 percent of U.S. adults said their personal finances are a major source of stress.

Traci Williams, PsyD, CFT-I, a board-certified clinical psychologist and founder of Healthy Wealthy Roots, says that identifying the root of financial trauma—which can include generational poverty and witnessing family members’ unhealthy relationships with money—can be difficult. “We must first start by labeling childhood experiences as potentially traumatic events. Often, people do not recognize what they’ve survived as traumatic, simply because it was all they knew.”

“The child who witnessed their parents arguing over money might grow up to become an adult who is uncomfortable talking about money matters.” —Traci Williams, PsyD, CFT-I

When we do not find financial security in our guardians, lasting effects occur. “The child who witnessed their parents arguing over money might grow up to become an adult who is uncomfortable talking about money matters,” Dr. Williams gives as an example. “If the child experienced poverty, they might become adults who feel overwhelmed when making financial decisions, or adults who do not trust lawmakers and financial institutions.”

Financial trauma can also be the result of one major event, like having to declare bankruptcy, divorce, or being homeless. While not everyone who gets laid off or divorces develops financial trauma, Dr. Williams says, these situations can create extreme stress and anxiety that might have long-term negative impacts on a person’s relationship with money.

It’s important to note that financial trauma is currently not a medically diagnosable condition—and there’s minimal research on the phenomenon. But that doesn’t mean its impact isn’t significant. Data collected by the Payoff survey found people had symptoms including denial and avoidance (which affects their ability to plan or organize their finances), intrusive thoughts (like fixating on upcoming bills), irritability, and social isolation.

“There is an emotional component to experiencing trauma. It can include experiencing anger, disbelief, fear, sadness, and shame,” says Dr. Williams. “The effects of the experience and its associated emotions can linger into adulthood if unaddressed.” A person’s anxiety or shame surrounding financial decisions can then manifest itself in an inability to maintain a budget or keep money in your savings. Similarly, a person may participate in other self-destructive habits like constantly working (like I did) or unhealthy gambling.

How to better manage your financial fears

Financial trauma doesn’t have to be the end of your story. In fact, there are ways to manage your trauma and create a healthy relationship with your finances—as I’ve learned first-hand through therapy.

Change your mindset

Becoming financially literate requires a whole person approach. But you can start with something as (seemingly) small as adjusting your mindset. For example, in an appearance on the PTSD & Beyond podcast, Dr. Buckwalter encouraged folks with financial trauma to try and “savor what we have,” rather than fixate on what went wrong. This might not directly change your circumstances—reminding yourself of what you do have doesn’t fix the issue of past-due bills or joblessness—but it can help you feel better equipped to address your problem with less of a panicked, overwhelmed feeling. (Think of it as like a financial gratitude practice.)

Dr. Williams also recommends creating financial affirmations to help you build a more positive relationship with money. Some affirmations include: “I live a financially stable life” or “I am in control of my financial future.” She acknowledges that job loss and the sudden hikes in inflation can be jarring. To maintain our mental health, she suggests that, “as best as possible, remind yourself that this change is temporary, and lean into the aspects of your situation which you can control.”

Learn small financial skills

When we know better, we can do better! Sometimes much of our financial stress comes from simply not knowing a better way. And it’s understandable: Money management, saving, and investments can seem like huge concepts to practice. Thankfully, there are a plethora of resources on the internet and in books that can be accessed in order to learn financial literacy. Financial activists like Dasha Kennedy from The Broke Black Girl and Tiffany Aliche The Budgetnista also offer advice and supplemental resources for free on their websites and social media channels.

“If you are emotionally or mentally overwhelmed by addressing your finances, choose one small action to get you started,” suggests Dr. Williams. This small action can include saving a certain amount of money every week, or starting a budget. Remember, this is an individualized approach and needs to make sense for your lifestyle. Once broken down into smaller practices, these goals are achievable.

Seek help from a professional

Talking through your current issues with money with a professional can help you identify the root of your issue, as well as appropriate coping strategies. “Addressing your history with money matters can help you feel more confident in your financial decision making,” says Dr. Williams. You can find a directory of mental health counselors that specialize in finance on the Financial Therapy Association.

Once you tackle the emotional part of financial trauma, you can then work on creating a plan of action. If you think you can afford one, Dr. Williams recommends finding a fiduciary financial advisor, who is required to act with your best interests in mind. She says that these advisors are best for those who have difficulty trusting financial institutions. The Foundation for Financial Planning offers a directory of volunteer certified financial planners to offer sound advice and pro-bono financial planning.

I know now that being laid off triggered my past fear with my finances. The only silver lining of that experience was realizing that I had a problem—and that there was still so much unlearning and healthy boundaries I needed to put into practice. Now, I know that money itself wasn’t the problem, but rather my relationship with it. I’m starting to feel more confident about my financial future, and I hope you will soon, too.