How Does Trauma Affect Personal Finances?

trauma brain injury emotional negative emotional unstable personal finances compulsive therapy help clasped hands

There are many factors in life that could affect your personal finances. This can range from your family background, cultural factors, media, or even unprecedented global events, such as a deadly pandemic. However, one factor which affects personal finance is one that is often overlooked. According to the National Library of Medicine, this commonly unrecognized factor which affects around 70 percent of Americans is trauma.

What is trauma? 

A person experiences trauma when an extremely terrible event is too much for a person to cope, prompting an emotional response. Trauma causes lasting feelings of helplessness and fear, which can lead to certain maladaptive behaviors. An individual may be traumatized after a one-time event such as a natural disaster, car crash, or an assault. However, trauma can occur from continuous negative experiences, such as neglect or abuse.

Post-traumatic stress disorder 

If the trauma is particularly damaging a person could develop a long-term condition known as post-traumatic stress disorder (PTSD). This condition can include symptoms such as flashbacks, acute anxiety, and nightmares. People with PTSD may also find themselves chronically depressed.

Long-term effects of trauma 

There are many long-term negative effects experienced by traumatized individuals. This may include all of these aforementioned symptoms of PTSD, obesity, increased substance abuse, and difficulty in forming healthy relationships with others. Trauma has also been known to increase likelihood of having an unstable work history, compulsive spending, and overall difficulty in managing finances.

How trauma affects the brain 

Much of the long-term effects of trauma stem from how trauma impacts the brain. Sustained stress conditions can alter the development of the brain which can be particularly relevant if the traumatic experiences occur during childhood. Being stressed means that stress hormones are constantly being produced in the body and the brain which can weaken the immune system and cause inflammation. This can lead to chronic illness and disease.

Since the stress hormones keep the brain in a constant survival mode, the higher order problem-solving and thinking capabilities become diminished overtime, particularly when trauma occurs during childhood. This has been shown to be detrimental to learning and ability to make decisions. It has also been shown to be the cause of attention and concentration issues.

Damage to the brain has been linked to maladaptive behaviors such as taking excessive risks as well as substance abuse.

Effects of trauma on personal finance 

It is obvious how the long-term symptoms of trauma can affect one’s personal finances. According to the Mayo Clinic, traumatic damage to the brain can alter behaviors in a way that is not conducive to budgeting, saving, and making smart financial decisions. Of course, the inability to maintain steady employment, impulsive spending, and inability to maintain healthy relationships will inhibit one’s ability to earn income, making for an unstable financial situation.

Get help 

Fortunately, there are numerous options available for helping you deal with trauma and its negative effects on your emotional life as well as your finances. Therapy and some psychotropic medications have been shown to be effective in helping alleviate trauma symptoms. As far as the financial aspects, you may want to consider consulting with a professional financial advisor to help with budgeting and other financial planning needs.


Any opinions are those of the author and not necessarily Raymond James. Any information provided is for informational purposes only and does not constitute a recommendation. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected.