How Childhood Trauma Can Impair Your Financial Well-Being

Have you considered that If you’ve experienced childhood trauma, you may be at greater risk of being financially vulnerable as an adult?

 A recent study published in the American Journal of Family Economic Issues showed that people who had experienced one or more types of adverse childhood experiences (ACEs) were more likely to demonstrate decreases in financial well-being. 

If you're having a “oh not me” reaction to this article, know you are not alone. I have had that reaction to this topic more times than I care to admit. I invite you to consider this may be a psychological defense mechanism coming into play. 

ACEs are when parents or guardians neglect, abuse, or abandon their children. Researchers examined the connections between ACEs and financial well-being and found some surprising results, including how childhood trauma can impair your ability to foster financial well-being in adulthood.

The real challenge is that the number of traumas experienced is not just for one group of people, whichever group you think that might be. The research continues to show that when looking at the different types of trauma children can experience, the distribution is pretty equal across racial and economic status. 

Problems with Executive Functioning

Early childhood trauma impairs later developing executive functioning. Executive functioning creates reflection, planning, and organizing. Basically, it's what makes you a fully functional adult capable of being emotionally mature, maintaining intimate relationships and flourishing at work. 

An estimated two-thirds of children who have been neglected or abused don't grow up to be functional adults because they can't think through things like their career plans or organize their finances. The lack of executive functioning means that most abused and neglected children never really reach their full adult functioning capabilities. 

One study showed that individuals with a history of childhood maltreatment had more trouble making complex financial decisions than those without such histories. 

How are you doing reading this article so far? Can you see how this impacts your own life or the person you are partnered with? 

I have met many wonderful people and professionals through my counseling practice over the years. Many of them hold very prominent positions of responsibility in their work. Yet when it comes to their intimate and money life, things have become very challenging for them. 

The common thread is their professional education helped them learn how to function in their specific profession. Yet that is not enough to override the chaos and rigidity they experience in their personal lives. 

Thoughts, Feelings, and Behaviors

Childhood trauma can also impact our ability to integrate and work with thoughts, feelings, and behaviors. Those who experience trauma can suffer from PTSD (Post-Traumatic Stress Disorder) and may be at higher risk for developing other mental health issues such as anxiety, depression, addiction, and personality disorders.  

When we cannot effectively regulate thoughts, feelings, and behaviors, we can begin acting out in ways that negatively affect us financially. 

For example, a person who has PTSD might engage in risky behaviors like spending too much money on an impulse purchase to save their business or gambling too much money in hopes of getting back what they lost.

 In another example, someone suffering from depression might feel helpless and hopeless about their financial situation, leading them to neglect to manage their finances and talk with their partner about what is happening especially if they have been in charge of the finances up to this point. 

Many types of mental health issues can lead to a powerful downward spiral of negative financial behavior patterns, often resulting in more frustration and financial distress, creating a negative feedback loop that is difficult to break. 

A key component to overcoming these difficulties is healing childhood trauma through multiple forms of therapy including financial therapy.

Interpersonal Relationships

Financial intimacy is the social component of financial well-being. The brain is a social organ according to Dr. Louis Cozolino. Therefore, it is critical to nurture healthy interpersonal relationships to develop your ability to foster increases in financial well-being. 

If you are ready to heal your relationship with your intimate partner and money, start by focusing on healing your childhood trauma. Through neuroplasticity, your brain can change and develop new neural pathways based on your experiences. 

Understanding how Adverse Childhood Experiences (ACE) impacts a person’s sense of self and others is key to healing from ACE’s. Those who have experienced multiple ACE’s often find themselves repeating unhealthy negative patterns into adulthood.

Healing Our Brain and Self Through Relationships

Scientists are learning that childhood trauma impairs our ability to understand ourselves and others. Financial therapy is one way people heal from traumatic experiences that are adversely impacting their financial life. 

By creating a safe space where you can openly work on reflecting on what is happening to you instead of following your automatic reactions that involve relationships and money, you increase your self and other awareness. Remember that self-reflection is a part of executive functioning. 

One common trauma reaction is that we can overly attribute either positive or negative intent to another person, which leads us to either missing signs of support that are there for us or missing threats that could harm us. 

Checking intent. Take some time to reflect on the last week and notice what intent you have assigned to your partner about money decisions they have made. Do you see positive intent or negative intent? Why do you think that is? 

Talking About Trauma With Others

Talking about trauma is an ongoing process. Often first practiced in therapy, learning to open up about childhood trauma can be a long road. When talking with a significant other about these issues, it’s essential to let them know that sometimes you may find yourself re-experiencing past trauma. 

If you are a partner with someone who experienced trauma you can support your partner's recovery and ask if they want some space or help processing what they are feeling. It can take years for people who have experienced abuse and neglect to feel comfortable enough to talk about their experiences. 

As people start to address their trauma they often begin by sharing bits of information without fully revealing what happened. In time they might share more of their story, but only after establishing trust with their partner or therapist. 

When opening up about childhood trauma it’s important to establish trust with your partner or counselor before disclosing any details. This usually happens over time as you become more comfortable opening up about what happened and connecting on a deeper level.

Giving Yourself a Break

I’m going, to be honest with you: healing trauma is like working out. You need to work at it actively and have breaks. So if you decide to work on healing your trauma, also make sure you give yourself a break. 

If one of those breaks involves turning off your phone or computer and watching reruns of Friends for three hours, that’s totally fine. The goal isn’t always to keep pushing forward—it’s also important to rest and recover from what you do work through.

The worst thing we can do to heal our traumas (and anything else) is to ignore them entirely or pretend they don’t exist. That will just make things worse in the long run because all that pain will still be there, waiting until you let your guard down so it can start creeping back into your life again. 

At the same time, we can burn ourselves out and completely overwhelm ourselves if we try to push through and heal the trauma too quickly. Finding your balance between paying attention and resting and relaxing will evolve as you work through your trauma.

Do you need someone that is experienced in working with childhood trauma and personal finances to help you develop your financial plan, then let me introduce you to Therapy Informed Financial Planning. Schedule your free 30-minute discovery call. 

Wishing You Healthy Love and Money,

Ed Coambs,

MBA, MA, MS, CFP®, CFT-I™, LMFT

HealthyLoveandMoney.com

Remember You and Your Partner Are Worth It!