The Effects of Trauma on Personal Finance

Tawnya Redding  02/11/2023  Money Lessons

A plethora of things effect our personal finances and the development of our financial habits.  From family, to culture, to media, to unprecedented global pandemics, our money lives are constantly being molded and shaped by things both within and beyond our control.

While the majority of things that help shape our financial lives are relatively easy to see (but not necessarily to change or resist), there is a silent epidemic running throughout the world. One that affects as many as 70% of people in the U.S.

This silent epidemic is trauma.

Trauma is a pervasive aspect of our society that affects every aspect of the lives of those who have experienced it. Although the link between trauma and personal finance may not be clear, rest assured that it is there.

This article will discuss some of the main effects of trauma on personal finance.

First, we’ll define trauma and its prevalence. Next, we’ll discuss how trauma effects brain development and one of the most eye-opening studies ever done regarding trauma and its effects.

Finally, we’ll conclude by making the connection between trauma and personal finance crystal clear and offer ways to combat its effects.

What Is Trauma?

According to the American Psychological Association, trauma is “an emotional response to a terrible event.” It occurs when the extreme stress of the event(s) overwhelms the person’s ability to cope.

People impacted by trauma often have feelings of fear and helplessness, and their inability to cope or escape the trauma often leads to the development of maladaptive means of coping.

Experiencing trauma can be the result of a one-time event such as an accident, assault, or natural disaster, but it can also be the result of persistent negative experiences such as abuse or neglect.

While not all who experience traumatic events are severely affected by trauma long-term, it is safe to say that the majority are.

As previously mentioned, 70% of U.S. adults (or 223.4 million people) have experienced a traumatic event at least once. Furthermore, 90% of clients in public behavioral health have experienced trauma.

Post-traumatic stress disorder (PTSD) is a common manifestation of trauma and is characterized by flashbacks, nightmares, and acute anxiety.

While most commonly associated with soldiers returning from war, PTSD is far more prevalent in our everyday society.

And one of the most startling populations of victims is children.

Almost all children who witness parental homicide or sexual assault develop PTSD. Furthermore, 90% of those who’ve experienced sexual abuse, 77% of those who’ve experienced a school shooting, and 35% of those exposed to community violence will also develop PTSD.

Aside from the high likelihood of developing PTSD, experiencing trauma is linked to a host of other negative outcomes, especially when experienced in childhood.

Adverse Childhood Experiences (Aces)

There have been a host of studies linking childhood trauma to negative outcomes later in life, but the largest of these was conducted by Kaiser Permanente in the mid-90.

Called the Adverse Childhood Experiences (ACE) Study, researchers surveyed over 17,000 individuals about their childhood experiences and correlated them with later life outcomes.

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