The Smart Girls’ Guide to Navigating Financial Trauma

It is crucial to take a slow yet steady approach when dealing with poor or negative beliefs around money

To most people, 34-year-old Nitara Sharma* was living her best life. 

She had a thriving career as a hairstylist, was married to her high-school sweetheart and lived in a beautiful home in Goa with their two children. Behind that rosy facade, however, their marriage was hanging by a thread. Several fights with her husband involved hurtful words being flung around the room repeatedly, especially when they discussed money. She didn’t approve of his decision to invest more in his restaurant, he couldn’t understand her reluctance to invest in their future, when they already had a home, reasonable savings and financial safety nets in place. Her anxiety around their finances was grating away at her—and at them—and no matter how much she reasoned, she couldn’t shake it off. 

They turned to family for advice and intervention. While talking to her brother, Sharma recounted memories of constant financial stress at home while growing up. She remembered coming home from school with their mother who did not have enough money for the bus fare. And here she was, a financially independent adult, still tearing up as she recollected the experience, the dread of being found out, the embarrassment as the bus conductor asked them to get off. “I was eight years old and clearly remember the walk back home from school that day, trailing behind my mother, wondering what would happen to us.” That is when she realised that deep-seated childhood fears were governing her financial decisions well into adulthood. She sought help from a therapist eventually, as it was clear that her financial trauma was spilling into other aspects of her adult life. 

Understanding financial trauma

“While spending money, investing or saving, we really don’t think about the influence of our childhood experiences. However, subconsciously, a lot of what we do with money stems from this kind of conditioning, which may not always be obvious, and may not be restricted to parents, but largely what we experience when we are growing up,” explains Lisa Pallavi Barbora, personal finance coach and founder of Moneypuzzle. “It shapes our decisions around money,” she says, narrating an interaction with a client where they were discussing life goals. “I hope I didn’t sound too ambitious,” her client had said apologetically. “The perception that being ambitious and wanting more money is not a good thing, and that you should be happy with what you have, and not overreach, can be damaging. It’s unfortunate, because it stops you from achieving goals that you have the potential to achieve,” says Babora. 

For several people, such experiences and beliefs around money can have a deep-seated impact. Whether it’s something as severe as losing your home, filing for a divorce or losing a job and the resultant financial distress, or medical debt, losing money at the stock market, or even something as minute as hearing your parents argue over money as a child, can cause what financial experts and therapists call “financial trauma”.

“Financial trauma can have a subliminal, yet profound impact on the way we view and deal with money. In some cases it creates negative feelings, anxiety, anger, depression and fear—symptoms that mirror Post Traumatic Stress Disorder  (PTSD)—when dealing with money,” says Dr. Anjali Chhabria, psychiatrist and founder of Mindtemple.

However, unlike PTSD, financial trauma is not a recognised psychiatric diagnosis, which is why a number of people—including financial advisers and therapists—tend to overlook it. This means that a large number of people suffering from financial trauma do not realise that it could be inevitably hurting their psychological and financial health, adds Chhabria. 

A study performed by Nobel Prize-winning psychologist Daniel Kahneman showed that we make financial decisions based 90 per cent on emotion and only 10 per cent on logic. This then necessitates acknowledging and addressing the emotions tied into negative financial behaviours. Some of these behaviours can emerge in different ways—financial avoidance, financial dependency, compulsive spending, underspending, workaholism, lack of financial boundaries, scarcity mindset, or excessive risk aversion. 

Tell-tale signs 

While financial trauma can manifest itself in different ways, here are a few red flags that experts such as financial advisors, life coaches and therapists tend to look out for. 

1. Financial avoidance: Acknowledging or addressing your money problems with money is overwhelming and causes so much discomfort that you are likely to avoid discussing or dealing with it altogether. For instance, bills and bank statements tend to go unopened. In the case of credit card debt, you pay the minimum amount due on your card each month, but don’t bother to look through the statement to see where the money has been spent or even think about how you plan to pay it off. 

2. Overspending: If you have grown up with inadequate finances or little money, chances are that you overcompensate in adulthood by splurging on things and experiences you could never afford.

3.Underspending: Growing up with a frugal mindset or an experience that has caused great financial stress could leave you with a fear that money is a rare commodity. Even when there is enough money, there is a great reluctance to spend as you worry that it might disappear.

4. Under-earning: A fear of financial instability, or the thought that asking for a raise will be considered greedy, can mean that you do not advocate for yourself at work. It could mean that you would rather be underpaid or settle for less because you don’t want to be seen as a so-called greedy person. 

5. Hoarding: Having to live without something can show itself in a habit to hoard things or money. Or perhaps a reluctance to let go of things even when they are no longer in proper condition, stemming from the fear that you may not have the resources to buy it again.

6. Workaholism: If you have seen someone lose their job and the resultant financial strain, or have grown up with the mindset that time is money, there is every chance that working to the bone seems the right thing to do.

Resolving financial trauma

What is relieving is that you can address and, at some level, control the impact of negative feelings around your finances by seeking help from a life coach, financial coach or therapist. 

Talk about it

Increasingly people are turning to experts who can help them with planning their lives, which entails going into the past to understand your own and your family members’ behaviour with money. “When we use life-planning tools, this reality gets captured through structured exercises where you have conversations about family history, financial history, major influences in your life and what they said that left an indelible mark on you. These exercises help think and reflect on their behaviour, making them realise where a certain type of financial behaviour is stemming from,” says Vishal Dhawan, CEO and founder of Mumbai-based Plan Ahead Wealth Advisors.

Identify and address problematic beliefs around money

Once you recognise the signs of financial trauma, you can work towards a solution. Barbora recommends that you work with a professional to address it. Discussions around money can be very uncomfortable and emotionally loaded among families. A trained professional can help. “Think of them as an accountability partner, someone who is watching your actions and behaviour and makes you more likely to follow through on those changes.” Moreover, they are doing so in a non-judgemental way. The approach the coach uses is to ask you the right questions, nudging you to think deeper about your options—whether the choices you are making are appropriate for your future, and enable you to live your best life, she adds.

Start small

While being aware of our emotional triggers around money can be empowering, it’s important to take a slow yet steady approach while addressing poor or negative financial beliefs.

“It’s important that you don’t try and move in a dramatically opposite direction because then the risk of a rebound into your old ways is very high,” says Dhawan. 

For instance, if you have a tendency to splurge, it may make sense to start setting aside some money, even if it is a small amount, regularly towards savings. Such small but sustainable steps can set the foundation for better financial habits. 

Take stock of your financial behaviour 

Once you make some headway with acknowledging and addressing damaging financial behaviour, it is critical to keep revisiting these beliefs. “This is to ensure that you are not swinging from one extreme to another. So, for instance, if you were in large credit card debt and have worked your way out of it with discipline, chances are that you have figured that loans and debt are bad for you. But when your children want to take an education loan, you vehemently oppose it, you could end up denying them a better education,” concludes Dhawan. 

(*name changed on request)

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