Tackling financial trauma with knowledge and support

Living a healthy financial life is a goal for most individuals and households. However, sometimes our past negative experiences with money can hold us back. In other words, our “financial trauma” can be a barrier to our financial success. To move forward, individuals and households need to address their trauma head on. That’s an important acknowledgement for consumers, but also for the financial professionals who will be better equipped to help clients and customers rediscover the path to security.

Here, Rod Griffin, senior director of consumer education and advocacy for Experian, and Bruce McClary, senior vice president of membership and communication for the National Foundation for Credit Counseling (NFCC), discuss financial trauma and how consumers can overcome their past experiences to newly seek out financial independence.

Q: Tell us about financial trauma, and why it can be a barrier to financial independence?

Rod Griffin: Financial trauma refers to the various ways significant financial stressors can affect us emotionally, cognitively, relationally, or even physically. Imagine suddenly losing your job, struggling to pay your rent or mortgage, worrying about the next meal, dealing with debt, or witnessing your parents fight about money. These experiences not only impact our relationship with money but can also make us feel hopeless or ashamed about our financial situation.

But the effects of financial trauma go beyond just anxiety. They can create a snowball effect, influencing our future financial decisions. We may end up constantly overspending, or overcompensating by not spending at all, hoping to avoid further financial insecurity. Maybe past recessions left a deep impact, making us reluctant to invest or save for retirement.

Moreover, financial trauma can shape how our friends, family, children, and community perceive finances. Our children may adopt similar patterns, perpetuating a cycle of financial struggles for future generations.

It’s crucial to understand the far-reaching implications of financial trauma and work towards building resilience and healthy financial relationships.

Bruce McClary: While the topic of financial trauma has garnered more attention recently, it’s still not a widely discussed issue. Some people may be embarrassed about the influence that past experiences can have on their current financial situation. We must talk about issues, such as financial trauma, otherwise we could continue down a path that negatively impacts our financial decisions.

The reality is, even if you feel you’ve moved beyond your trauma, unexpected expenses can still trigger anxiety. Past financial habits or challenges do not define a person. While our experiences matter, it’s how we react and learn from those experiences that shape who we become.

Q: Who is most impacted by financial trauma?

McClary: Financial trauma isn’t specific to any one group. For instance, we’ve all experienced some significant economic headwinds over the past 15 years. Many people were severely impacted financially by the pandemic, as well as the Great Recession. You may not immediately recognize it, but those experiences affect some of your financial decisions.

Griffin: Stress is relative. It’s based on our own experiences and reactions. Anyone can suffer from financial trauma. In fact, Experian recently deployed a survey of 2,000 consumers in the U.S. and found 68% of U.S. adults feel they have suffered from or are currently suffering from financial trauma. In addition, 65% of adults admit to experiencing negative thoughts, flashbacks and anxiety when dealing with financial issues.

While anyone can experience anxiety with their financial situation, younger generations, such as Gen Z and millennial adults, tend to stand out. Some 73% of Gen Zers and 77% of millennials report experiencing negative thoughts, flashbacks and/or anxiety about money.

Q: How can we help consumers overcome their financial stressors?

Griffin: Knowledge is power. Roughly 55% of survey respondents expressed that access to more financial education would help alleviate their financial stressors; however, 37% of U.S. adults were unaware of where to access trustworthy information about financial literacy.

Sometimes financial stress is only compounded because people don’t know where to start. As a financial services community, we must connect consumers with effective financial education resources and materials and help them build healthy financial habits. Understanding basic concepts, such as saving and budgeting or building credit, can empower consumers to take control of their financial lives and improve their financial wellbeing.

We also must recognize everyone is at a different stage of their financial journey. Financial literacy is not a one-size-fits-all approach. A solution for one person may not be applicable to someone else. Equipping them with financial knowledge to navigate their financial situation puts them on a better path to success.

Expanding our reach to share knowledge with more people is critical. One way we do that is by partnering with organizations and community leaders who understand the financial stressors impacting individuals in the communities they serve.

McClary: Financial trauma isn’t easy to overcome on your own. Stress of any kind, but particularly financial stress, can be overwhelming. Having a plan can alleviate some of that stress.

For example, at the NFCC, we connect consumers with certified financial counselors to help them address various pain points, including debt management, homeownership, student loans or small business cash flow issues. Understanding consumers’ current financial situation and building an actionable plan can get them on a path toward financial independence.

Rod Griffin is senior director of consumer education and advocacy for Experian.

Bruce McClary is senior vice president of membership and communication for the National Foundation for Credit Counseling (NFCC).