Early acceptance can help you deal with debt trauma, personal finance expert says

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. 

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.

"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."

According to a recent survey conducted by Maru/Matchbox and commissioned by Meridian Credit Union, 55 per cent of Canadians said their childhood experience with money had a long-lasting impact, and 42 per cent said that their early experiences with money have left them feeling anxious and worried about their money as adults.

The online survey was conducted with 1509 respondents across Canada among adults 18 and above between July 27 and Aug 11. CBC cannot accurately calculate a margin of error for online surveys. For comparison purposes only, a probability sample of the same size would yield a margin of error of +/- 2.5 percentage points.

Ahmed-Haq said life events can also trigger debt trauma even if individuals are financially stable. 

She 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.

Debt trauma has far-reaching effects

Ahmed-Haq said the trauma can impact all aspects of a person's life.

She said couples may fight about money and their individual expenditures. They can also feel more anxious about their abilities to afford household expenses. 

Debt trauma can distract people at work, and also stop them from pursuing their goals and being happy. 

While it can be difficult to recognize whether a person is suffering from debt trauma, Ahmed-Haq said avoidance, distractions and denial are some of the evident signs.

Avoidance can manifest as not wanting to look at one's debt. Putting off looking at bills or ignoring calls from collectors is a telling sign, as people take the approach of "if I can't see it, it's not there," Ahmed-Haq said.

She said people experiencing debt trauma use distraction to search for ways to get their mind off of their debt and escape the anxiety.

"Watching too much television, spending too much time out of the house and not really dealing with the debt — or even worse, using drugs and alcohol to escape from this feeling of always worrying about your money," she said.

Denial means ignoring the signs that one is suffering from debt trauma and instead linking it to other stressors or life events. 

How to heal?

Ahmed-Haq said the first step to recuperate from debt trauma is to recognize that one is suffering from debt trauma and accepting it.

Speaking to a therapist can help in understanding life events that are contributing to the trauma.  

"Taking active steps to manage your money better, which can include a plan to pay off debt, taking steps to ask for a raise at work or upgrade your skills to get you in a better financial situation," she said.

She said this is difficult to do as it can also mean distancing from people and things that trigger a debt trauma response.

Ahmed-Haq said it takes strength to say no to occasions — like wedding invites or friends visiting out of town — that can cost hundreds of dollars.

"It's really about rewiring your experience with money when it's traumatic and negative. It's about making it positive and understanding," she said.

"That can come with having a budget in place, paying down debt, feeling financially well, and once you have all that plan in place, you feel much more in control of your debt trauma."