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How trauma leads to destructive financial choices


Child abuse. Warfare. Assault. If you have endured a life-threatening event, you may be more likely to make poor money decisions

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How trauma can wreck your finances

Child abuse. Warfare. Assault. A devastating accident. If you have endured one or more life-threatening events, you may be more likely to make destructive money decisions.

Researchers discovered that post-traumatic stress alters the way a person thinks and reacts to situations, including financial behavior. A 2012 Cornell University study of veterans, “Do Psychological Shocks Affect Financial Risk Taking Behavior?,” found that service members who lived through combat are more cautious in their financial investments, thereby forfeiting capital gains that could benefit them in their retirement years. The study states that just as unpredictable macroeconomic shocks (such as a stock market crash or a rapid currency devaluation) makes investors risk-averse, profound psychological shocks impact survivors in much the same way.

If you are making negative money choices, especially those hurling you into arrears, and you believe it might be due to past trauma, there are ways you can change course.

Trauma’s neurological impact

According to Paul Hokemeyer, a Manhattan therapist, traumatic events can lead to compulsive and destructive economic behaviors. The root of this phenomenon, he says, is the impact that trauma has on the brain.

These are not conscious, deliberate actions, says Hokemeyer. “Traumatic experiences cause our brain to overreact. They force us into a stress mode where we are compelled to take action as a protective measure.

“In my work as an addictions and family therapist, I see too often how people utilize money and the objects it buys to self-medicate away the emotional pain that is left in the wake of their trauma,” says Hokemeyer. “Oppressive credit card debt is very frequently one of the destructive consequences of their unfortunate legacy.”

So while soldiers who have been through battle tend to shun risk, others who have suffered through different kinds of trauma may respond by being spendthrifts.

As an example, Hokemeyer describes a female patient who, as a teenager, had been exposed to domestic violence. “When she was 15, she heard her parents always screaming and fighting. To medicate, she would go online and look at clothes. That was the way she felt soothed.”

“I see too often how people utilize money and the objects it buys to self-medicate away the emotional pain that is left in the wake of their trauma.”

Initially, the girl would calm herself by looking at images. Then she bought something and felt good. As problems at home continued, she bought more. “So here’s a direct relationship between the trauma and the activity,” says Hokemeyer. “But as an adult she didn’t see the connection right away.”

Michelle Black, a credit expert at, a credit education and restoration program in Charlotte, North Carolina, says she comes across people on almost a weekly basis who have financial problems due to traumatic circumstances.

“A couple years ago, I was helping a man to rebuild his credit after his wife was killed in a car accident,” says Black. “Naturally, he had unexpected financial expenses from the funeral and decreased income from missing work while he was grieving. However, he also began to use shopping and overspending as a way to temporarily cover up his grief. There is a reason that it is called ‘retail therapy.’ “

Negative reactions to trauma

What financial decisions might you be making as a reaction to trauma? Responses vary among individuals, says Hokemeyer, but the most common include:

  • Excess spending. Shopping makes you feel in control and centered. When the trauma is triggered, you shop to self-medicate.
  • Excess saving. The opposite side of the coin is hyper-vigilance. You consider the world to be an unsafe place, so protect yourself by hoarding possessions or money.
  • Under-earning. You may be highly educated, talented and capable, yet do not pursue or keep positions for which you are worthy because you feel undeserving.
  • Over-working. You can’t stop working because the only way you can feel of value is by bringing in as much money as you can. Satisfaction is elusive, though.
  • Perpetual debt. Owning tangible consumer items is proof of worth (when you may not feel it). Therefore, you reach for things outside yourself and your means. You might also believe, deep down, that you do not deserve wealth, so sabotage it with overcharging.

Of these responses, Pandora MacLean-Hoover, co-founder of the Think-diff Institute counseling center, says uncontrolled shopping is the most typical — and most damaging.

“While spending may provide relief from the emotional injury of trauma, it often creates unmanageable debt,” says MacLean-Hoover. “Therefore, the relief may be short-lived. The burden of debt eventually reinforces negative beliefs that the spending diminished, creating a vicious cycle.”

Black agrees, explaining that the abuse and mistreatment of money after a trauma is a common coping mechanism: “When a consumer’s world gets turned upside down, especially by a sudden illness or accident, financial and credit problems are usually not far behind.”

“When a consumer’s world gets turned upside down, especially by a sudden illness or accident, financial and credit problems are usually not far behind.”

Stephen Lesavich, a Chicago attorney and co-author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards,” also believes that traumatic life events often lead to impulse purchases. “The products and services are used for easing the feelings associated with the negative emotions and may be used to fill an emotional void,” says Lesavich.

Connecting trauma, financial behavior

Can you stop such negative, compulsive responses? Yes, insists Hokemeyer. Crucial to getting your dignity and esteem back is realizing and accepting that a traumatic event has changed the way you deal with money. Yet pinpointing deep-seated issues can be elusive.

“Neurologically, we defend against uncomfortable truths,” says Hokemeyer. Knee-jerk denial is normal. After all, you might not want to accept that you keep yourself in debt or unemployed because something terrible happened to you. Instead, you want to believe that it’s all due to separate, outside factors, he says.

Several psychotherapy methods can help you differentiate between conscious, healthy financial behaviors and harmful ones triggered by the event. The standard approach is cognitive therapy, which is based on the assumption that thoughts, feelings and behaviors are interconnected. With a therapist, you isolate the origin of your inaccurate thinking, determine the emotional response, then work to form new, positive behaviors.

Less widely known techniques are also effective, says MacLean-Hoover. She uses a combination of therapies, including Eye Movement Desensitization Reprocessing (EMDR), which was originally developed to help relieve trauma-induced stress, as well as gestalt and cognitive therapies. In aggregate, these therapies “help people identify why the spending makes them feel better,” she says. “Once people understand why they do what they do, they may embrace alternatives.”

With professional guidance or even with just a mighty will to change, you can switch gears. Black recalls a client whose wife died. “A couple of years later, he was ready to deal with the financial fallout of the trauma,” says Black. “He wanted to put himself in better position so he could buy a home for himself and his child. We were able to help him, but it took about six months of hard work to correct the mistakes of his past.”

Ultimately, “You must train your brain to believe in you. If you sense you have a problem, there is a 99 percent chance it’s true. Trust that feeling and seek proper care to address the issues,” says Hokemeyer.

What to do now

In the absence of formal therapy — or before seeking it — you can try to redirect the feelings of powerlessness into other activities. Do things that “restore a sense of importance,” says MacLean-Hoover, who suggests physical exercise, reading, artwork or socializing with friends as examples of positive ways to redirect spending urges.

Even the process of budgeting can restore a sense of power, says Hokemeyer. It’s a simple defense against irrational, destructive economic choices.

If you suspect a traumatic event is behind your consistently poor financial decisions, Lesavich suggests a process of “checking in” on your emotional state. Awareness breeds strength and the opportunity to make better decisions, he says. “When emotional triggers cause you to make purchases you don’t need or can’t afford, you give your power away to someone or something else.”

Prior to shopping or charging, Lesavich recommends asking yourself the following questions:

  • How do I feel right now?
  • What is causing me to react this way?
  • Why do I feel the need to buy this?
  • Do I really need it?
  • How will I feel after I buy it?
  • How will I feel when I have to pay for it?

It’s self-generated cognitive therapy, helping you connect the cause-to-action dots. Frequently asking and then answering them will guide you to make deliberate, healthy actions not based on past hurts, but on present needs and sensibilities.

You don’t have to let a traumatic event continue to haunt you or harm your economic security, says Lesavich: “By making a choice to not react to them, you will help yourself to create a prosperous financial future for you and your loved ones.”

See related: Financial denial: When avoidance creates money mayhem, Money disorders: Financial dependency and self-worth

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