Every person's relationship with money differs based on their unique circumstance. Some people are fortunate to grow up in a positive financial environment that prepares them for future financial success. Others may encounter hurdles and challenges that result in financial instability. Perhaps it's the rising cost of housing, sudden job loss, struggling to put food on the table or managing debt. Whatever the obstacle, these experiences can lead to feelings of anxiety, shame, guilt and hopelessness as it relates to an individual's financial health.
Simply put, some individuals suffer from financial trauma — the emotional, cognitive, relational and physical symptoms that can be triggered by significant financial stressors.
While it's not a widely discussed topic, more people than you realize are battling trauma from past events. In fact, according to a recent Experian survey, 68% of U.S. adults feel they have suffered from, or are currently suffering from, financial trauma. Moreover, approximately 65% of adults admit to experiencing negative thoughts, flashbacks and anxiety when dealing with financial issues.
The pressures of financial instability can take a mental and emotional toll and create a snowball effect that negatively impacts future financial decisions. Unfortunately, the repercussions of financial trauma can extend far beyond the individual, shaping how their family, friends and even community view money. For instance, watching parents struggle with finances can cloud a child's relationship with money, especially as they grow and experience their own challenges.
The pandemic only furthered some of the stressors people are experiencing. Nearly 30% of U.S. adults have experienced significant financial losses due to COVID-19. In addition, more than a third of U.S. adults (35%) have experienced significant financial losses due to recession or other economic changes.
We, as a financial services industry, have a responsibility to help individuals and families, particularly those from underserved communities, overcome their anxiety with money and embark on a path toward financial independence. Fortunately, many people are eager to improve their financial situation. They just need to know where to start.
While 55% of survey respondents expressed that access to more financial education would help alleviate their financial stressors, 37% of U.S. adults were unaware of where to access trustworthy information about financial literacy.
A federal court extended an injunction that halts the Consumer Financial Protection Bureau's rule until the Supreme Court rules on the bureau's constitutionality.
The importance of financial literacy cannot be overstated, especially in the current economic climate. Understanding basic concepts, such as saving and budgeting, building credit and investing, can serve as a baseline to help people navigate some of their financial challenges.
Everybody is at a different stage of their financial journey. Equipping them with the financial knowledge to navigate the mainstream financial system better positions them to improve their financial well-being.
Before we can provide financial literacy, however, we need to listen. It is paramount that we connect with respected community organizations and leaders to build trust with consumers and understand the challenges they are experiencing. Content needs to be relevant to an individual's situation.
Each of us — banks, credit unions, credit bureaus, nonprofits, community leaders — holds a different piece of the puzzle. By working together, we can reach impacted communities and provide the necessary tools and resources to help individuals and families make more informed financial decisions to reduce the financial stressors in their lives.
Financial trauma is an all-too-real experience for many individuals and families, particularly those from underserved communities. Increased financial literacy can play a crucial role in empowering consumers to overcome financial trauma and become more financially independent.
It will take collaboration across the financial ecosystem to provide consumers with the tools, resources and knowledge necessary to improve their financial health. Only then can individuals achieve the financial stability and security needed to thrive in today's economy and beyond.
