by Wendy Wright, LMFT, Financial Therapist, Wealth Transfer Dynamics Specialist, Money Coach

Key Points

• A recent discussion about financial trauma by four financial experts
• How to identify signs of financial trauma in your money life
• How my signature Financial Therapy approach can help you begin healing

Intrusive thoughts, racing thoughts, chaotic thoughts, or rigid thoughts around your money decision making. Avoidant money behaviors, obsessive money behaviors, constantly in conflict about money. All of these experiences can be ways you have developed to cope with financial trauma. Consider these statistics: In a 2016 study, 23 percent of Americans (including 35 percent of Millennials) reported experiencing psychological effects similar to posttraumatic stress disorder (PTSD) due to “acute financial stress” (source). IYKYK, right?

Let’s dive in with a complicated question: What defines financial trauma?

Just last week, I attended FinCon 2024 and recorded an episode of the Stacking Benjamins Show podcast with host Joe Saul-Sehy, Paula Pant of Afford Anything, and Larry Sprung of Mitlin Money Mindset. To help identify what is traumatic, I offered the following framework: Trauma can be something that happens that your brain doesn’t expect or know how to absorb.

When it comes to financial trauma, it may mean a sudden loss of income by job loss, divorce, or other life shocks. It can be living with a verbally abusive parent or spouse who constantly berates you as “bad with money.” Joe mentioned this article as a conversation starter. A scarcity mindset, sometimes called scarcity trauma, is a chronic form of financial trauma. Thomas Faupl, LMFT, SEP, adds, “Scarcity trauma comes from a lack of financial resources.” The roundtable also used the Great Depression as an example. During this time, the nation experienced a common trauma of sudden and significant change to income and security.  

So what happens to someone who experiences financial trauma?  

During this roundtable, the group discussed how a response to a traumatic event is usually a blend of the impact of the event and the neurobiology, or the temperament, of the individual. If you believe you may have experienced financial trauma, I encourage you to notice if you shift into highly rigid or highly chaotic money behaviors.

For instance, if you tend toward hyper organization in a time of stress, you may notice that you start to rigidly save money. This reaction becomes a coping skill. You may feel highly uneasy – threatened, to some degree – if you need to take money out of your savings.

Or if you tend toward chaos, brain fog, and/or avoidance in a time of stress, this shows up in money behaviors and patterns. You may find yourself in a debt cycle, for example, racking up large amounts of debt with promises that “it will be the last time.” You may pay off the debt and vow to never go into debt again, only to break the promise and sink deeper into despair.

These are just a couple of examples of how financial trauma may manifest in money behaviors.

What can you do to start your healing journey? I’ve seen my 10 Principles of Financial Therapy© play a major role in helping to heal and shift my clients’ relationships with money.  The first principle, Abundant Compassionate Curiosity and Zero Judgment©, can really change the game. This idea allows the space to see your money behaviors as ways you have learned to cope with a difficult situation, not as evidence you are inherently “flawed” with money. Hope can begin to show up for you, which makes a huge difference.

Another principle, A Plan is Only as Good as Its Adjustment Process©, is also discussed by the group. This principle gives space to acknowledge that flexibility is important in money planning and decision making. Larry endorsed this principle as one he uses with his planning clients. He shared ways that he has supported clients and podcast listeners to grieve what didn’t work and move toward the adjustment process with compassion.

To listen to the full episode, click here! Other key ideas discussed during our roundtable include:

• Diving into financial trauma
• Signs of financial trauma
• Personal stories about the scarcity mindset
• Individual and cultural financial trauma
• Judgment and financial secrecy
• Inherited wealth and emotional struggles
• Behavioral finance in financial planning
• Building compassionate financial relationships
• Recognizing financial trauma: hoarding 
• Societal views on hoarding vs. Saving
• Personal stories of financial extremes
• Balancing financial planning and living in the present
• Diagnosing money hoarding and anxiety
• Steps to address financial anxiety
• Exploring false connections with money
• The importance of financial planning and adjustments
• Tracking spending and financial awareness
• Principles of financial therapy
• When to seek financial therapy

Ready to do your own healing from financial trauma?

Download the free Foundational Series of My Financial Therapy Journal and begin your recovery journey! Stay tuned for more journal prompts to deepen your financial therapy work.

As a reminder, these resources are not therapy or a replacement for therapy. They are meant to be educational and great to use in combination with therapy. To book a free discovery call with me, click here! 

The post Financial Trauma and Financial Therapy appeared first on Financial Therapy Solutions.

This post is part one of a four-part series focused on wealth transfer and financial therapy. The vignettes featured in each post are fiction. All names and events are the products of the author’s imagination and used in a fictitious manner. Any resemblance to actual persons, living or dead, or actual events is purely coincidental.

Sarina’s hands trembled as she clutched the phone, stunned by the news she had just received. The lawyer’s voice was steady and professional, but she could barely grasp his words: She had inherited one million dollars. 

The weight of the announcement sank in slowly, each second stretching as her mind raced through possibilities. She looked around her modest apartment, imagining what this sudden windfall could mean for her future. Overwhelmed and elated, Sarina felt as though she was living in a dream. Her life just changed dramatically, and she struggled to process the enormity of it all.

Sarina just experienced a wealth transfer — one that was both unexpected and not discussed.

After this life-changing news, she is left to figure out her next steps on her own. And she’s not alone. In fact, over the next two decades, the biggest wave of wealth in history is going to pass from Baby Boomers in the United States, and it’s going to have major impacts on many facets of life. Called the Great Wealth Transfer, 84 trillion dollars is poised to move from older Americans to Gen X and millennials. According to Sallie Krawcheck, the CEO of Ellevest, women specifically are on their way to having the majority of wealth in America. 

To better understand this idea of wealth transfer, think about the popular Netflix show Bridgerton. Do you notice all of the money stories threading through each episode — or is that just me, your favorite money story nerd? These storylines are, in part, about the flow of generational wealth. Each character develops their own relationship with wealth and their own strategy for managing it. Some individuals must learn to handle wealth that they inherited and never imagined. On the flip side, some must learn to manage a lack of wealth, while others have to overcome the lack of avenues for building their own secure financial base.  

What comes up for you when you hear the word “wealth” or read about the Great Wealth Transfer? If you have mixed feelings or scattered thoughts, you’re in good company. Wealth is one of the most emotional money terms. And wealth transfer — well, you can probably tell by your reaction that it’s an emotional bucket full! According to recent research, 80 percent of recipients consider wealth to be a burden; 10 percent count it as a blessing; and 10 percent are undecided (Brandon Rains; The Rains Law Firm, LLC).

Let’s dig a little deeper into the concept of wealth.

Technically, wealth refers to plentiful resources, an abundance or overflow. When applied to finances, it means having more than enough. Note that I am purposefully not connecting this idea to dollar amounts. This post isn’t about math; instead, we are highlighting the mindset and emotions around wealth.  

If you’ve lived with a lifestyle and a mindset of scarcity — the belief that there is “never enough” — a wealth transfer can be incredibly hard to grasp. Suddenly, there is more than enough. Yet, your scarcity mindset, deeply ingrained into your neural pathways, will quickly find reasons why it still isn’t enough. With that belief screaming loud in your mind, behaviors will follow. You may experience deep fears around spending the money or losing it. You may want to ignore it or avoid investing it because just thinking about it makes you so uncomfortable. 

The same idea holds true if you already have enough money and then someone transfers more to you. Now, you have more than enough, which can be problematic in a new way. You may refuse to check your bank balances or avoid setting up meetings with financial planners or advisors. You may not even want to talk about it with close friends or family members. You may also adopt behaviors to “push” the wealth away, like spending, gambling, or giving. These are not true, value-led, mindful choice-based behavior. They are meant to serve as a way to get rid of your wealth in order to get rid of the feelings bubbling up. 

Now that we’ve defined wealth, let’s look closer at wealth transfer.

Wealth transfer is a giving; it’s moving money from one person to another. It’s also a receiving — something that suddenly comes into your life, either expected or unexpected. The transfer of wealth takes many forms, including a one-time inheritance, lifetime gifting plans, divorce  settlements, insurance pay-outs, income from a business or property sale, lottery or gambling wins, and more. 

As Ashley Agnew, the current President of the Financial Therapy Association explains, if someone doesn’t feel comfortable talking about how the wealth transfer makes them feel, they will not be able to maximize the value of their wealth. Further supporting this idea, it is estimated that 70 percent of wealthy families lose their wealth by the second generation, while 90 percent lose it by the third generation. 

To close, let’s revisit Sarina’s wealth transfer.

Sarina’s life had always been a tightrope walk, each paycheck barely covering her bills and necessities. She was accustomed to the constant stress of making ends meet, counting every penny with meticulous care. But today, everything changed in an instant. 

When she received the call about inheriting a million dollars, the weight of her financial struggles seemed to lift off her shoulders. The relief was overwhelming but also confusing, her exhilaration swirling with her anxiety about the future. Thoughts and questions bounced around in her mind: Do I put this money in my checking account or savings account? How do I invest it? Should I hire a financial planner? How do I even get the money? I don’t know what a wire transfer is. How do I tell my friends? Will they treat me differently? 

Unsure what to do next, Sarina stood in her living room, looking at the world with new eyes, feeling a mixture of disbelief, gratitude, and confusion for her sudden turn of fate.

Stay tuned for part two, where we dive deeper into the pain points associated with a wealth transfer. Click here for more supportive resources and additional help. If you’re ready for individualized support, book a free discovery call now!

The post Part One: Understanding the Great Wealth Transfer appeared first on Financial Therapy Solutions.