While the topic of financial trauma has garnered more attention recently, it is still not a widely discussed issue. Empowering consumers to move beyond their financial trauma and become financially independent arguably has a huge benefit to the overarching economy.
To understand how the stress related to financial trauma impacts consumers overall financial wellbeing, Digital Journal spoke with Rod Griffin, senior director of consumer education and advocacy for Experian and Bruce McClary, senior vice president of membership and communication for the National Foundation for Credit Counseling.
DJ: How does financial trauma and stress impact consumers’ overall financial health?
Rod Griffin: Financial trauma can have both short- and long-term effects on a consumer’s mindset and relationship with money. In the short term, these experiences could leave consumers feeling anxious or ashamed about their financial situation, leading to overspending, under saving, or overcompensating by not spending enough, simply to avoid further financial insecurity. These behaviors can compound over time and put consumers in more dire situations, such as increased debt, the inability to access housing or having insufficient retirement savings.
Bruce McClary: Sometimes financial trauma can lead to poor financial decision making that can have a lasting impact on your financial wellbeing. For example, if you’re anxious or worried about paying your bills, you may opt for the quick fix, taking on high-interest loans or credit card debt. This can lead to a cycle of increasing debt that is difficult to escape.
It can also create a sense of scarcity or insecurity. You’re constantly worried about not having enough and falling back into financial instability that you become too risk averse. You might miss out on investment opportunities or saving for retirement, impacting your long-term financial success.
DJ: Are there any misconceptions about financial trauma and stress?
Griffin: Perhaps the biggest misconception about financial trauma is that it only affects consumers who have made poor financial decisions, but the reality is, anyone can experience financial trauma and stress. It could be the result of sudden job loss, divorce, unexpected home repairs, historical inequalities and the list goes on. In fact, Experian recently deployed a survey 2,000 U.S. consumers and found 68% of U.S. adults feel they have suffered from, or are currently suffering from financial trauma. In addition, 65% of adults admit to experiencing negative thoughts, flashbacks and anxiety when dealing with financial issues.
The other misconception is that people can easily overcome financial trauma by budgeting, saving, and investing, but financial trauma can be overwhelming, especially if you don’t know where to start. It can feel like the whole world is caving in on you. However, there are steps people experiencing financial trauma can take to lead more financially empowered lives.
McClary: There’s a misconception that financial trauma only affects an individual’s relationship with money. But it can also negatively impact an individual’s mental and physical health, personal relationships and even productivity. Constantly worrying about your financial circumstances can weigh heavily and make it difficult to be present with friends and family.
For instance, if an individual argues with their spouse about money, it can have a lasting impact on their relationship. Let’s take it a step further. If their children constantly witness the financial and emotional stress, it can impact their relationship with money. They may grow up with a fear of never having enough. Financial trauma can create a vicious cycle that impacts future generations.
DJ: What advice would you give someone experiencing financial trauma?
Griffin: Talk about your financial stress. Normalize conversations about money. The Experian survey found that more than half of respondents stated their family rarely or never spoke about finances, and the lack of discussion left 42% feeling like they never learned about financial planning; a significant obstacle to overcome if you experience financial trauma.
We have to break the cycle. Explore opportunities for financial literacy with friends and family. The more we acknowledge our financial challenges and openly discuss them with our trusted inner circle, particularly our children, the better positioned they are to learn from our experiences, and more importantly, they’ll feel more comfortable accessing financial education and resources in the future. Talking about our financial challenges also allows us to recognize we’re not alone.
McClary: Seek counsel from trusted and qualified experts. Many people are embarrassed or ashamed about their financial situation, and it can prevent them from getting help. Sometimes people feel like they’re the only one struggling but know that’s not the case. Financial struggles are common and seeking help is not a sign of weakness but rather strength. It can set an individual on the path toward financial success.
Getting one-on-one counseling can help consumers understand their financial situation better. For example, the National Foundation for Credit Counseling (NFCC) connects consumers with certified financial counselors to help them address various pain points, including debt management, homeownership, student loans or small business cash flow issues. Identifying areas of improvement and developing a plan are critical to overcoming trauma.
Beyond counsel, experts can also provide emotional support and limit the feelings of isolation when people need it most.
What steps can banks and credit unions take to help consumers overcome financial stress?
Griffin: Find ways to connect consumers with financial education tools and resources. This can go a long way. In fact, 55% of survey respondents expressed that more financial education would help alleviate their financial stressors, yet 37% of U.S. adults were unaware of where to access trustworthy information about financial literacy.
People need access to tools and resources, as well as financial knowledge to navigate the mainstream financial system. That’s how they become more engaged and active participants, and ultimately more financially successful.
Banks and credit unions are also just one piece of the puzzle. By fostering collaboration among various stakeholders, including nonprofits, community leaders, credit bureaus, and other financial institutions, consumers can gain a comprehensive understanding of the different components of the financial system. This knowledge will empower them to make informed decisions and navigate the complexities of the financial landscape more effectively.
McClary: Beyond providing products and solutions, such as payment plans or loan modifications, financial education and credit counseling are paramount. Offering workshops on debt management or financial planning combined with one-on-one counseling sessions can help consumers gain the financial knowledge needed but also apply it to their current situation.
People are eager to improve their situation, sometimes they just need a push in the right direction.
