If you hoard money or tend to cycle into compulsive buying when bored or stressed, you might've been labeled as someone who has a money disorder. Made popular by financial psychologists Brad Klontz and Ted Klontz, a money disorder is defined as "problematic, ongoing money behaviors and beliefs that can damage one's financial health."
Common money disorders include pathological gambling, overspending and compulsive shopping, financial dependence, financial enabling, unreasonable risk taking, underspending and compulsive hoarding, financial enmeshment, financial rejection and even workaholism.
While it can be helpful to identify someone as having what's commonly known as a money disorder, Trauma of Money, a psychoeducational platform that provides certification in trauma-sensitive approaches to money, offers the following critique: The idea of financial disorders places too much shame and responsibility on the individual.
Another way of looking at it: Money disorders are someone's response to stressful circumstances. One might be dysregulated and operating in a constant flight-or-fight or freeze mode. It comes from a place of scarcity, and Trauma of Money reframes the traditional notion of a money disorder as a money disruption.
Further, the main issue with money disruptions, according to Trauma of Money, is that they can pathologize the individual versus seeing the external factors that can cause them to behave in maladaptive ways with their finances.
Placing all the responsibility and shame on the individual doesn't pull back the lens and see that there are situational systemic issues at play that can be a result of a broken system.
Because of systemic inequality and oppression, according to research from the Brookings Institute, more than one-third of families in the U.S. — and one half of families of color — don't have enough resources to cover basic necessities. To make things worse, low-income families have to pay more for essentials. As a result, inflation can hit those financially stretched the hardest.
"When you don't have a lot of money, life can be very complex, and there's a lot of things you're dealing with," said DJ Jack, a financial planner at Abundo Wealth. "Family, job, and general stress. So when they're putting it off, they're trying to put out more pressing fires."
How systemic inequity connects to money disorders
One way inequality and oppression can significantly influence someone’s money disorders is by fostering avoidance of the financial system altogether, said Uziel Gomez, a certified financial planner and founder of Los Angeles-based Primeros Financial. Sometimes these beliefs are passed onto the next generation.
Avoidance of the financial system can mean you might reject products and services that can ultimately help you. It can also lead to mental fatigue from having to make more decisions based on the inconvenience and added stress that comes with not using, say, a bank account or credit card.
For example, consider someone who experiences discrimination at a bank or financial institution due to a lack of representation, cultural misunderstandings or language barriers. "This negative experience often discourages them from returning, leaving them unbanked," Gomez said. "As a result, they may pass down the belief that financial institutions aren’t trustworthy or designed to help people like them."
Further, if you grew up in this environment you're more likely to inherit this mistrust and also avoid financial institutions. "This cycle perpetuates generational unbanked households, forcing individuals to rely on quick-check cashing services that charge exorbitant fees — an outcome driven by systemic barriers without a clear understanding of where it all began," Uziel said. These fees can create more financial stress.
Another example is predatory lending. "Predatory lenders often target low-income households, exploiting the financial literacy gaps that exist in these communities or preying on the urgent needs of individuals facing financial crises," Gomez said.
Many borrowers don’t fully understand the high fees and interest rates tied to these loans, but they proceed out of necessity — usually to cover emergencies. "Over time, these loans often lead to overwhelming debt due to the steep interest rates, leaving borrowers feeling trapped and disillusioned," he said. "This negative experience can cause them to avoid all forms of credit moving forward, passing on the belief to their children that credit is dangerous and should be avoided at all costs."
As Uziel explains, systemic barriers and lack of access to resources can create a cycle of financial mistrust and avoidance, perpetuating harmful money beliefs and behaviors from one generation to the next. "These deeply ingrained experiences shape financial behaviors in ways that are hard to unravel without education, support and systemic change," he said.
In turn, these financial beliefs, behaviors and patterns can lead to feelings of pervasive hopelessness, Jack said. "When people feel hopeless, they throw away all concepts of the future, because the future won't be brighter than it is today," he said. "And if they feel they're never going to be able to get out of a situation, they think they might as well live for the moment."
The link between self-soothing, scarcity and shame
"Money disruptions are often born out of some form of a survival mechanism," said Sylvie Scowcroft, a certified financial planner and principal advisor at The Financial Grove. "So whatever you are surviving can affect which type of money disorder you have."
According to Trauma of Money, money disruptions are a type of expression or result of trying to meet a basic need. This can include a sense of belonging, autonomy, safety, purpose, connection and self-expression. And when you are self-soothing, it might stem from scarcity of time, energy or resources.
When one is operating under scarcity, it can reduce cognitive capacity, which impacts intelligence and how we process information. Plus, it can reduce our executive function, which impairs our impulse control, organization and decision-making skills.
Operating within a scarcity mindset means you are operating at a lower capacity, which impairs your ability to make the best decisions. This is due to higher levels of stress and mental fatigue from constantly worrying and making decisions and trade-offs about your money to cover the essentials.
"Often, the people who are living with the most scarce resources have to make higher quality decisions, but they're in a worse position to do so," Scowcroft said.
She offers the following example: You're packing for a trip, and you only have a tiny suitcase but a lot of stuff. You spend so much time and energy trying to think about all the trade-offs, so it's a more mentally taxing packing experience. Then, while you're on the trip, you spend a lot of time wishing you had this other thing you weren't able to bring. But if you had the resources to have a bigger suitcase, you wouldn't have any of that mental load.
The money disorder and shame cycle
Unfortunately, shame about money can lead to coping mechanisms, which also can feed into the shame. For example, take overspending, said Scowcroft. When you feel shame about money, you often spend money to soothe those ill feelings. And to reduce some form of pain, there's an action you take over and over again. But it can lead to credit card debt, which also leads you down a shame spiral — and leaves you feeling worse.
This doesn't mean someone on a shopping spree is "bad with money." Because they're in survival mode and operating in a scarcity mindset, they aren't equipped to make the best decisions about their money, both in the short and long term. They might be self-soothing because they are stressed, and retail shopping feels like a release.
For example, imagine the person who hates their job and is overworked. To make themselves feel better, they might engage in retail therapy, Jack said.
Unfortunately, this might be a maladaptive coping mechanism and can compound the problem. They might be more prone to racking up credit card debt — which means they'll need to work longer hours and feel trapped at their despised job.
"It's really hard to think about the future when the present feels terrible," Jack said. "You're just trying to find immediate relief. But these are short-term solutions that cause long-term problems."
A path toward financial healing
So what can be done to decrease money disruptions, help individuals be free from these shackling feelings of shame and improve their overall financial wellness?
Ideally, systemic shifts can help support people in their struggle of not having enough. For example, universal basic income (or a greater number of UBI pilot programs), creating higher-income opportunities for those without college degrees, decreasing overdraft and late fees and giving people access to small-dollar amount loans can be starting-off points.
At the individual level, you can start by looking at the emotional and behavioral patterns that have shaped one's financial decisions, Gomez said.
"Many money disorders stem from past experiences or ingrained beliefs, so reflecting on your money story is a crucial first step," he said. "By exploring your earliest money memories, current financial challenges and future goals, you can gain clarity on how these patterns developed and identify areas for growth and change."
And because shame and scarcity can be very isolating, Scowcroft recommends seeking community. For instance, consider joining a support group, such as Debtors Anonymous, or talking to trusted friends about your money shame and struggles.
"If you're in a really bad debt spiral and only blame yourself, it would be a lot harder to get out of that spiral if you thought it was simply because you were bad with money," she said. "But if you were to expand a bit and give credit to all the other factors that were causing that shame, it might be easier to break the spiral."
If you're in a good place to do so, consider working with a financial professional, such as a coach, counselor, therapist or adviser. As Jack explains, a professional can help you create an actionable, step-by-step plan. In turn, it can help pull you from a dark place of hopelessness to one of empowerment.
If you don't have the wherewithal, see if your work offers free financial counseling sessions. You can also do a search on the Foundation for Financial Planning, which has a directory of non-profits that work with professionals that offer pro bono financial planning.
"Placing blame or shaming an individual won’t help them overcome the challenges they’re facing," Gomez said. "For someone to take meaningful action and work through an issue, they first need to recognize that the problem exists — which often requires exploring the root causes."
