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4 Signs of Financial Shock and What You Should Do About It

Interacting with money is a reality of life, but that doesn’t mean it’s easy. In fact, personal finances can, although they may seem like “facts and figures,” come with a lot of emotional baggage. While some enjoy the privilege of not worrying about money, many others are accustomed to linking money with stress and insecurity, and even feelings of unworthiness.

What is financial trauma?

Dr. Galen Buckwalter, a psychological scientist and senior scientific officer at Happy Money, is one of the leading experts in the field of financial trauma. In 2016, he led a study on the relationship between personality and financial behavior. He found that nearly one in four Americans and one in three millennials exhibit symptoms resembling post-traumatic stress disorder stemming from financial stress.

Possible causes

Debt and financial insecurity: When we consider today’s reality of stagnant incomes, limited savings, and high debts such as credit cards, alongside recurring financial traumas like defaults, evictions, and aggressive debt collection, these findings should raise alarm bells in our society to address the challenges faced by millions due to debt.

Divorce and other life obstacles: Chantal Chapman, co-founder of the Money Trauma Method and founder of What The Finances, follows a trauma-informed approach to financial education and says that it is essential to consider financial trauma on both an individual and collective level.

Signs of financial trauma

1. Financial avoidance

Financial avoidance is a significant indicator of financial trauma, according to Chapman. This can manifest as not opening bills, not engaging with accounts as a business owner, or avoiding any and all conversations about financial matters. Chapman states that financial avoidance “can be a form of freeze,” and “when it’s at its worst, it’s dissociation.”

2. Overspending

Overspending or compulsive spending is another common response to financial trauma. This can manifest, for example, in spending a lot of money on eating out or making large purchases with money you do not have. For anyone struggling with overspending, Chapman says it’s important to do some introspection and ask yourself why. “If you are overspending due to a stressful day, you might be doing that spending to try to alleviate pain or seeking a dopamine hit.”

3. Underspending

On the other hand, severe underspending, even when money is available, can be a sign of financial trauma. Chapman refers to this as “extreme risk aversion,” which can be linked to a mindset of fear and scarcity around money. This may stem from life experiences where money was truly tight, causing a person to move forward with fear and trepidation.

4. Lack of financial boundaries

Another example of financial trauma, according to Chapman, is lack of financial boundaries or discomfort with setting limits around financial matters. “This can manifest, for example, in undercharging for services or earnings below true value, not negotiating salary increases for yourself, and not establishing clear payment terms in contracts. Or seeing this daily, people enter into business relationships with friends or others without having clear contracts regarding the business relationship.”

How to address financial trauma

Communication

Financial trauma doesn’t have to be a life sentence. In Dr. Buckwalter’s review of his study on financial trauma, he states that one of the first steps to resolving this trauma is simply to talk about it. This is the approach that Chapman and her husband have become accustomed to. “We’ve made talking about money a normal thing, in the same way we talk about many other topics,” she says. “It’s not a taboo subject in our home.”

Relaxation

Self

In Trauma of Money, Chapman says her team uses a multi-step approach to address financial trauma. “The first step is very important, and it’s understanding the state of your nervous system when money issues arise and then finding ways you can essentially regulate your nervous system,” she says. So, if you notice that you become anxious and overly excited when dealing with financial situations, she recommends that you give yourself the opportunity to acknowledge this response, step away to calm your nervous system, and return to your finances after you reach a more regulated emotional state.

Reducing Shame

At the center of Chapman’s approach is also the goal of reducing shame around financial behaviors. One way to do this, she says, is to separate yourself from the narrative. “So if it’s, ‘I’m bad at handling money or I’m bad at handling money because I have credit card debt,’ is that true? And how can you separate yourself from the narrative?”

Some of these negative beliefs around our financial behaviors stem from financial trauma—and they can be incredibly convincing. So, Chapman emphasizes the importance of reminding yourself that you “are not the narrative, you are a person of intrinsic value existing outside the narrative.”

After taking some of these steps to address the roots of financial trauma and forgiving ourselves for how we embody it, “here we can enter a more expansive state to reimagine a new future for ourselves,” says Chapman. “And then we are now more supported to take the actions we need to take.”

Source: https://www.realsimple.com/work-life/money/signs-of-financial-trauma

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