When money problems hurt kids: The hidden emotional cost and how to help

We now have a growing group of early morning hikers that walk on weekdays. We split into tiny groups of twos and threes as we navigate the narrow paths on the nearby hills. Some of the conversations turn unexpectedly intense when these routes offer privacy and quiet. Two weeks ago, I heard the story of bankruptcy and its impact on a young mind. How does a family cope with unexpected financial ruin?

The process leading up to it has left traumatic memories for my friend. He found his parents arguing and exchanging barbs every day; the family was putting up the pretenses to actively hide their financial situation in social gatherings; the father seemed very stressed and angry and the mother was bitter and resentful and both turned their temper on the unsuspecting children. They understood that something was going terribly wrong, and that it was about the money not being sufficient, but were too young to know what was happening. They worried why it was happening, and worse of it all, they blamed themselves for somehow being responsible for it.

The regret was heavy on their young minds because the repercussions on their lives were severe. As if they were being punished as if they had committed a crime. That is how they interpreted the drastic changes to their lives after their father declared bankruptcy. They moved from private schools to the government school; they shifted to a small rented apartment; their cars were gone and they walked everywhere; and there wasn’t enough food going around, even if it was basic and cheap. The only relief was that there were no strangers at their door asking for money and the children did not have to lie about their father not being home. How are the three young children, now in their late 20s, doing 15 years after the bankruptcy? What worked in their favour and what did not?

Reaching out

First, they feel very isolated and alone in their despair. Social scientists point out that being able to draw upon friends and relatives during periods of trouble is an important factor in the recovery from financial distress. Many feel too ashamed to reach out; and many cannot seek help and be vulnerable for the fear of being rejected. Friends can easily know that another is going through a tough time, and may be willing to support. Unfortunately many wait for the other to reach out and ask. Sometimes that gap can remain unbridged.

Psychologists say that this sense of being abandoned in childhood can create an attachment type that makes one anxious and avoidant. This impacts relationships negatively, where one feels insecure and fearful of abandonment. The ability to trust and forge meaningful relationships tends to get compromised. They can also swing either way: being overtly controlling or too dependent; being too needy or completely avoidant. These behavioural limitations impact their money personality directly.

Second, they feel that their ability to become achievers and winners has been short changed. Many lose the motivation to study and pursue their education; and many struggle with issues of depression and withdrawal. While the theoretical argument asks for them to work hard to get back what they have lost, when they see that their parents are unable to do it, they do not give themselves much of a chance. They cannot shake off the idea of what could have been, from their heads. That regret soon becomes the excuse to not even try.

Research shows that a complete change of scenario, including the place can offer a chance to begin anew. To be in a new place with the protection of anonymity and lack of judgement offers the most hope of rebuilding the future. There is enough evidence to show that people do much better when they flee oppressive conditions to a new place of safety and security. These decisions have to be made by adults, and children adapt relatively easily and can move past their traumatic experiences. External factors tend to dominate the ability of children to do better after a financial crisis. As adults, they feel proud of who they became when provided this opportunity.

The past reflects the present

In their financial behaviours, generosity and fraud tends to connect back to these survival patterns. Ethical financial behaviours, empathy towards the less fortunate, and pride and self-respect about one’s work is known to be linked to one’s lived experience and hard work of breaking out of a financial crisis. On the other hand, the exact opposite behaviours of petty theft, fraud and misdemeanour is also known to build from a misplaced sense of entitlement and denial of what might have been one’s entitlement and privilege.

A life of contradiction

Third, a mix of contradictory financial behaviours that can be traced to distress in the early years have been well-documented. Some of these are: overspending or retail therapy as a pill to numb the memories of poverty; extreme frugality and hoarding arising from the fear of shortages; distrust and suspicion about others waiting to rob them of their money; avoidance and carelessness with money and the processes such as bills, receipts and taxes; and constant financial anxiety and sabotage leading to self destructing behaviours with money, loans, career and assets.

The lasting impact of childhood trauma represents the painful documentation of young children suffering primarily from the decisions of their parents. In situations of financial distress, the parents may themselves need help and support. Many of us that live the good life can look out to help and support such families among our friends and relatives. It is a delicate and private matter and requires genuine care and empathy.

Providing the children the hope that things will get better, and helping their parents clamber back on to their feet, without the blame-game might help immensely. There is no need to enable or abet bad financial behaviour; but helping rebuild with a clear focus on the children might change those lives for the good.

The Author is Chairperson, Centre for Investment Education And Learning