Generational financial trauma, like generational wealth, is passed down from our parents and grandparents. Here's how to break the cycle.
Increasingly, people are having conversations about generational wealth. But I believe it’s all but impossible to create that wealth until you’ve uncovered financial wounds and begun to heal them.
Before we can talk about financial equality, we have to talk about generational trauma.
Generational trauma can take many forms, but when it comes to our finances, unhealed patterns and challenges can prevent us from building wealth and security.
Let’s start by looking at the differences between generational wealth and generational financial trauma.
When people talk about generational wealth, they’re referring to resources that have been built and secured within a family.
Generational wealth can mean exceptional financial success that’s tied to a lucrative business or investments. But it can also refer to more modest resources that still make a significant impact in a person’s life.
Someone whose grandparents left them $50,000 in a will, or whose parents paid for the down payment on their home, or who inherited a property that’s been in their family for generations – those are examples of generational wealth.
Cash gifts and inherited properties can provide people with a head start in life because they can use those assets to save, invest, and grow their own wealth.
Related reading: Why Homeownership Holds the Key to Wealth Creation in America
Like generational wealth, generational financial trauma is also passed down from our parents and grandparents.
A person who has suffered financial trauma is at a significant disadvantage compared to those who benefit from generational wealth, and even those who may not come from wealth but weren’t born into debt or economic uncertainty.
Someone who experienced financial trauma not only lacks assets or assistance from their family, but they also carry emotional baggage related to money.
Generational financial trauma can stem from years of living in dire poverty. But it can also come from living in households where bills were often paid late, money seemed to come in on a feast or famine basis, or the household income-earners were frequently between jobs.
For the children of immigrants, the trauma can be even more pronounced. Perhaps your parents or grandparents immigrated to the U.S. to escape war or seek economic opportunities. But the struggle to survive stays with them even once they’ve achieved stability, and the scarcity mentality and urgency around money has been passed down to you.
It’s difficult to view money through a lens of possibility and abundance if you’re always expecting a loss or a threat to your economic survival.
I was born in El Salvador and raised in Inglewood, California, so I have witnessed the immigrant experience firsthand. The fear of not having enough, and the challenges of establishing your family in a new country, have far-reaching impacts.
Even if you grew up in a financially stable household, your parents’ or caretakers’ attitudes toward money shape the way you see the world and how you approach your finances.
But money messaging can have an impact on families of all backgrounds. If your parents lived paycheck to paycheck and didn’t prioritize saving, you might adopt the same patterns as an adult.
On the other hand, if your parents were extremely frugal because they were constantly afraid of not having money, you might tend to that extreme, too, regardless of how much you earn.
Understanding your own money trauma is so important because it can define the trajectory of your financial life and overall well-being.
Another factor that can affect people is what I call generational dependency. If you’re putting yourself through college or trying to buy a house – both of which can enhance your wealth-building prospects – but you are also supporting your relatives, that can make it more difficult to achieve your goals.
Someone with generational wealth is able to focus solely on putting their inherited resources to use for their advancement. But someone with generational dependents must split their energies on getting ahead financially and supporting loved ones.
Generational dependency can occur for a number of reasons. Perhaps your parents are immigrants and the language barrier prevented them from achieving financial success on their own. It can also happen when parents don’t have sufficient retirement savings or insurance. If they cannot work for some reason and they do not have savings, they may depend on their children for their expenses.
The financial strain of generational dependency can cause stress and trauma, as there can be tremendous pressure to provide not only for yourself and your immediate family but your extended family as well.
No one is born with financial literacy skills. You either learn them from your family, or you teach yourself. And neither one happens overnight.
But it is possible to heal generational money trauma and shift the way you think about and manage your finances.
Here are my tips for how to heal from money trauma.
Unlearning old money patterns takes time, especially when they’re associated with stressful or traumatic periods in your life. Recognize from the outset that this process takes time, and don’t be hard on yourself about things you don’t know or mistakes you make along the way.
You’re not going to get everything right, especially in the beginning, and that’s OK.
Choose one skill to build or goal to focus on, and work on that until you see some success. That can be as simple as saving $20 a month if you’re not in the habit of saving.
If you have a big picture goal, such as buying a home, figure out the first small step you can take. And you don’t have to figure out what that is on your own. Talk to a lender about the homebuying process and how you can best prepare yourself. Then take the next small step in that direction.
It’s also important to know that things will come up that stall your financial journey. You’ll be working toward a goal and something will happen, because that’s how life is. You might lose your job, or your car will break down, or you’ll get sick, or you’ll need to help out a family member.
When life happens, simply adjust course and know that this is a long-term, evolving process and it won’t be without its difficulties. But it will be worth it to take control of your money and well-being.
Sometimes when you look at financial advice online or talk to people about your goals, they want to know what your five-year or 10-year plan is.
But if you’re grappling with money trauma, it can be difficult to think that far ahead. That’s especially true if you’ve lived in a cycle or environment in which you haven’t always had enough money for your bills or haven’t been sure whether you will have enough for rent.
Rather than think in years, break down your goals day by day. Do you want to start saving? Commit to saving $1 a day. You want to pay down debt? Set a daily goal for putting even a little money – again, $1 a day is fine – toward your debts that month.
And create a spreadsheet so you can track your progress every day. When you see those numbers move, even incrementally, your confidence will grow and you’ll want to stick with it.
After I graduated college, I wanted to pay down my student debt while also saving up money for an investment property.
When I first started making payments on my student loans, it felt like those payments would never end. But I tracked my progress constantly, and it took seven years to pay off one loan, but I finally did it.
That wouldn’t have happened, though, if I hadn’t taken it one day at a time, knowing that eventually, I would have that debt paid off.
First, unpacking trauma of any kind, including money trauma, can be quite challenging. You may want to work with a therapist as you unpack these memories and patterns.
If you can’t afford a therapist, contact your city or county municipal or social services. Many areas offer free or low-cost counseling services, so there is help available.
But you can also begin to understand your money patterns on your own. A question I like to ask during financial workshops is, what is your first memory of money?
Oftentimes, this is an “ah ha” moment for people, as they quickly make the connection between their earliest money memories and their habits today.
One of the most memorable reactions I’ve seen was from a man who was in his fifties and had built a successful, well-paying career. But he had a huge moment of realization when he recalled that his earliest money memories were of running down the street with his parents to pay their electric bills at the last minute. They would miss the cut-off for mailing payments so they would have to rush to the utility office in a panic to keep their lights on.
The man told me that to this day, he waits to pay his bills to the last minute, which creates stress and chaos in his life. He has the money to pay the bills, but the pattern runs deep.
That’s how strong our money memories are. Once we understand where certain patterns come from, we can consciously make different choices.
It’s a good idea to build up an emergency fund so you’re prepared for the unexpected. But that’s not quite what I mean here.
When something stressful happens, such as job loss or family challenges, we tend to revert to old patterns. For some people, that manifests as retail therapy or another type of spending as a coping behavior. It’s very difficult to think rationally and consider the long-term impact of our actions when we’re stressed or burned out.
That’s why I suggest planning for crisis moments. Think about your triggers, coping behaviors, and healthy alternatives.
A few examples of crisis moments and responses:
If stress at work or a sudden expense causes you to spiral, how do you usually respond? Do you splurge on fast food? Get off track with a wellness routine? Once you’ve identified the trigger and response, ask yourself what you could do instead – and gather the necessary materials beforehand.
For instance, if you gravitate toward unhealthy foods or behaviors, plan for those impulses. Buy yourself a gift card to a favorite restaurant so you can indulge in some comfort food without blowing your budget or disregarding your health. The gift card allows you to treat yourself within your means.
But maybe your coping impulse is to go shopping. It may seem counterintuitive to spend money when we’re stressed about money, but we’ve all been there. Rather than blow your budget for a fleeting dopamine hit, set yourself a spending limit and turn it into a game. Maybe you go shopping, but you can only spend $10 or $20. Challenge yourself to see how many things you can buy without going over that limit. Creating a game out of it shifts the focus of the outing and allows you to have a fun, cathartic experience without feeling remorse for spending later.
Or, skip the shopping trip altogether. Put together a self-care kit for when those stressful moments hit. Include things that will comfort you but will also help you stay on track with the skills and principles you’re developing. Your kit might include face masks, your favorite candy, a book you’ve looked forward to reading, some nice teas or another preferred beverage.
Then, when you’re stressed, you already have those resources on hand. Sometimes a simple reset at home can help you clear your mind and think through the next best steps.
If you’ve experienced generational trauma, the big financial milestones can seem intimidating – even out of reach.
Many homebuyers who do not come from generational wealth may be grappling with the challenge of purchasing a home while also paying student loans.
In some cases, they may not feel they can confide in their families about their stress, and they don’t have financial support for buying a home or paying down their student debt.
Having debt hanging over your head can make it feel very difficult to move forward, particularly if you feel like there’s no one to help you or who can understand.
But there are ways to move forward. Just as there are free and low-cost counseling programs available, there is also down payment assistance and homebuyer counseling for people who want to become homeowners, including first-time homebuyers.
You can also talk to a financial planner or meet with a mortgage lender to find out whether you qualify for a loan and what you need to do to move forward.
It is possible to buy a home even if you have student loans, just as it is possible to make progress on any kind of debt. Even if your family cannot provide the support you need, there are resources out there to help you grow.
Related reading: How First-Generation Homebuyers Can Start Building Generational Wealth Now
Although it may seem cliché, I always encourage people I work with to stay positive on their financial journey.
At a recent workshop, someone told me they were frustrated because they had no savings whatsoever. They were starting from zero. I pointed out that they were better off at zero than someone who was starting from less than zero because they were in debt. That helped shift their thinking and appreciate where they were.
Looking for the positives in our finances helps empower us. There’s always someone who is worse off than we are, which means there is always some cause for gratitude in our circumstances. And if you feel things can’t get worse, then the silver lining is that you can only improve from here and that you’ve learned powerful lessons that can help you going forward.
Let’s look at how keeping a positive perspective works:
None of this is to suggest that these circumstances aren’t painful, stressful, and overwhelming. But you can’t move forward if you stay focused on the problem. Shifting to gratitude helps you see opportunities and think positively about where you’re headed.
Generational financial trauma creates barriers to wealth creation and financial stability. But these barriers are not insurmountable. Being deliberate about recognizing your habits and changing them gradually to align with your goals will set you on the path to wellness and the life you want to create.
