People with early childhood exposure to negative experiences with money — like experiences of poverty and financial insecurity — may develop debt trauma.
Debt trauma can impact many aspects of a person’s life, but personal finance columnist Rubina Ahmed-Haq has some suggestions for how to manage it.
“Debt trauma can have a dramatic effect on people’s ability to manage their money. It relates to how money or maybe lack of it can make a person feel very unsafe and unworthy,” Ahmed-Haq told Saskatchewan Weekend.
She said research shows early childhood experience with money can have a long lasting impact, making some feel anxious and worried about their money as adults.
Ahmed-Haq said years of financial insecurity or personal events like a financially devastating divorce or a bad investment can also result in debt trauma.
Personal Finance expert Rubina Ahmed-Haq said debt trauma has psychological effects. (Courtesy of PC Financial)
“If as a child you were in a situation where you saw that your parents could never pay the bills on time or they were always behind on payments or a big event that happens in your adult life, such as your business going bankrupt, can trigger it,” she said.
“Those childhood experiences of being food insecure or evicted from your home as a child, those can have long-lasting effects, whether you are in debt as an adult or not.”
She said life events can also trigger debt trauma even if individuals are financially stable.
Ahmed-Haq referred to the recent Canada Food Price report — which projects the biggest annual increase in food bills on record for 2022 — as eliciting “a debt trauma response” in anyone who was food insecure or had a childhood of food insecurity.
“It doesn’t necessarily always have to do with the fact that someone is in deep debt to be in a debt trauma state. The effect is really psychological. We encounter something like the Canada food price report, and it gives us that familiar experience that can put us into that trauma triggered state,” she said.
Ahmed-Haq said the trauma-triggered state makes it difficult for people to make healthy financial choices. That state can make one end up ignoring bills and debt and further exacerbate the debt trauma.
“When your brain is in a trauma-triggered state, we lose the connection to our cognitive capacity and we enter survival mode,” she said.
In survival mode, Ahmed-Haq said individuals do not reach out for help because they feel there is no actual solution for their problems, which further intensifies their debt trauma.