Unemployment Is Fueling A Financial Trauma Crisis In America

Poverty isn’t just about a lack of money. In fact the word poverty comes from the old French word poverté , which refers to a wretched state. It’s about the combination of a persistent instability that extends into every corner of life, including your mind and your body. Low or no income can result in missed meals, overdue bills, and threats of eviction or repossession that can mean the difference between having a roof over your head and being put out on the street. In my forthcoming book Overcoming Financial Trauma (Wiley,2025), I identify financial instability and poverty as one of six distinct sources of financial trauma.

This source is the most referenced and recognizable as one of the flashpoint financial experiences individuals have that shape their outlook, behaviors, and beliefs with money. Today, with unemployment on the rise and the criminalization of homelessness, we are witnessing this source play out on a national scale.

Poverty and Financial Instability as a Source of Financial Trauma

When I started this series, I outlined the six sources of financial trauma as:

• Generational
• Vicarious
• Financial Instability
• Workplace
• Institutional
• Familial/Societal

With an initial focus on the harder to identify or recognize sources like vicarious financial trauma, generational financial trauma, and workplace financial trauma, my goal was to highlight the varied and pervasive nature of financial trauma extending beyond your direct experiences. However, when most people are introduced to the phrase financial trauma for the first time, they immediately make associations with individuals who have either experienced financial hardship growing up or who are currently in crisis and experiencing financial hardship presently. Due to financial socialization, even individuals who have experienced financial hardship and have recovered learn to develop shame, fear, and guilt with the idea of being associated with or thought of as poor or struggling financially. The mental and emotional strain this has is compounded by the very real need for survival extending beyond budgets, credit-building apps, and run-of-the-mill financial literacy content.

Financial Trauma as an Embodied Experience

Trauma research demonstrates that trauma is an embodied experience. That means that not only is trauma how you respond to something in your mind, but that your response to trauma engages your bodily systems and becomes stuck there. Financial instability due to job loss or the circumstances that allow for someone to fall into homelessness can have a profound impact on the production of cortisol, your body’s stress hormone, increased adrenaline, fear, interrupted sleeping patterns, and existing in a state of survival mode that forces you to choose between extremes like housing, food, and healthcare. This source of financial trauma shows up not only as an economic condition, but also a psychological wound that impacts decision making, interpersonal relationships, long term health, and more.

Why You Should Care (Even If You Are Employed)

Poverty and financial instability as a source of financial trauma doesn’t just show up in the homeless and jobless. Financial instability can exist on all ends of the income spectrum. With a prioritization of asset accumulation, even high-income earners who have their wealth tied up in illiquid asset classes can feel the pressure of financial instability in the event of a major emergency, a reduction in or loss of income, or an overleveraged position in a fluctuating asset class.

The focus of this source of financial trauma, then, should not be exclusively placed on income or net worth, but more so on how your body and mind react in the presence of a real or imagined threat tied to your money. While those with high or moderate incomes have a greater latitude to adjust their lifestyle expenses, if, for example, you are someone who lives at or above your means, even with a high income, any interruption to what is considered your normal can have devastating ripple effects both within your body and your mind.

Additionally, while you may be insulated from the impact of this source of financial trauma directly through planning, positioning, and/or privilege, the impact of poverty and financial instability can affect friends, family, colleagues, and people within your community. This can and does result in feelings of desperation that contribute to increases in crime, strained relationships due to expectations or requests around financial support, and survival-based decision-making that may appear erratic or irrational.

While I’m not suggesting that it is your responsibility to solve the issue of poverty and financial instability for your community, it is important to acknowledge the costs of ignoring poverty and financial instability as a source of financial trauma in the following ways:

• On individuals: through chronic stress, mental health decline, and financial paralysis
• On families: through intergenerational impact, childhood adversity, and limited choices
• On society: through the cost of healthcare, a weakened workforce, and increased crime

What Can Be Done About It

Poverty and financial instability are often framed as personal failings; the result of a series of poor financial decisions that finally caught up with the individual due to a lack of financial literacy.

This is a myth that simply is not true.

Poverty and financial instability are things that happen to you, not because of you. In fact, in my work as a financial therapist–and based on my own personal experiences–I find that individuals who are struggling financially have a greater capacity to plan and stretch resources because they have to, in comparison to those with higher incomes and more choices. Can individuals be empowered to have a sense of financial agency through increased financial education and an awareness of how to navigate financial systems? Absolutely! But does that increase in agency and education result in decision-making typically considered positive or ‘good’ financial decisions? Not necessarily.

I’ve been removing the phrase bad financial decision from my vocabulary as a financial educator and practitioner because I don’t believe people intentionally make bad financial decisions, but rather make what they feel is the best financial decision for them at that moment. When you place a trauma-informed lens on financial decision-making, you can recognize to a greater degree that individuals are making financial decisions based on their perceptions of safety.

In a state of survival–of trauma– most decision-making is anything but rational. So what can be done about it? Community resources, employers, and financial education providers can take a trauma-informed approach to financial wellness resources characterized by greater financial empathy.

Individuals impacted by financial instability can seek out professional help from financial counselors, financial therapists, and trauma-informed financial coaches for assistance in both organizing and understanding their finances and getting support in navigating the mental and physical impact of increased financial stress due to their circumstances.

Individuals not impacted directly can be proactive in being a source of moral and emotional support to members of their community by connecting them to resources, being a resource (with strong financial boundaries), and displaying empathy that addresses the ingrained shame and guilt the impacted individual may be experiencing.

Financial trauma is not a personal failing or an individual issue; it’s a societal one.