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Chances are you know someone who makes you wonder, “Why can’t they manage money better?” They may be intelligent, educated, and capable in many other areas of life, yet remain underemployed, stuck, or struggling to take care of themselves financially.
Research from the Center for Retirement Research at Boston College offers an explanation. People who experience significant childhood adversity accumulate 25 to 45% less wealth by their fifties and sixties. That’s a loss of $250,000 to $450,000 for every million dollars a person might have amassed.
The report, “How Is Retirement Wealth Affected by Adverse Childhood Experiences?” followed more than 12,000 people from adolescence through late career. Researchers identified five types of adverse childhood experiences, or ACEs: parental separation, physical abuse, emotional neglect, household alcohol abuse, and household mental illness. About half of all respondents reported at least one of these.
The consequences were striking. Childhood adversity is far from rare, and its financial impact lingers long into adulthood. Even after controlling for factors including parental education, race, and income, the researchers found that those who experienced ACEs reached late career with 25 to 45% less wealth than those who did not. Without adjustments, the gap widened to as much as 77%.
For anyone who works at the intersection of money and emotion, these findings are not surprising. Money decisions are rooted in the emotional learning we carry out of childhood. The study quantifies what financial therapists see every day: unhealed childhood trauma quietly drives the way people save, spend, and relate to money.
In an interview with the reporter who covered this study for Financial Planning magazine, I repeated what I have learned over decades as a financial planner and therapist: Underneath almost every illogical or hurtful financial behavior, there’s trauma. Sometimes that trauma is tied directly to money—a child’s savings taken by a parent, a family bankruptcy, or years of financial chaos. Other times, it’s trauma unrelated directly to money that still finds its way into financial behavior.
One of my clients, for example, began working at age twelve and couldn’t understand why she never saved. In therapy, she remembered believing that if she had money left over, she wouldn’t need to work, and working was what got her out of an abusive home. “Part of me has kept me broke my whole adult life,” she realized. Within weeks of recognizing that pattern, she began saving thousands of dollars each month.
The protective money patterns formed in childhood, the parts of us that spend, save, or avoid money, are completely rational emotionally. They developed to help a child survive in a world where safety and control were scarce. When we learn to meet these protective parts with compassion rather than shame, our behaviors begin to shift.
It’s easy to judge people who reach retirement with fewer resources as careless or undisciplined. Yet many are carrying the emotional damage of early experiences they never chose. Their financial challenges began long before their first paycheck.
This research supports my long-held view that therapy is an investment that can show measurable financial as well as emotional benefits. The sooner someone begins to heal their childhood wounds in financial therapy, the greater their wealth tends to grow. The healing restores their very capacity to make life-enhancing financial decisions, including the ability to build financial security.
What the Financial Planning article calls “the long shadow of childhood” does not have to define our future. When we heal the emotional wounds beneath our money stories, we begin to make financial choices from clarity rather than fear. That shift is where lasting financial wellbeing begins.
Rick Kahler, MS, CFP®, CFT™, CeFT®, is the founder of Kahler Financial Group, a Rapid City, SD-based fee-only Registered Investment Advisor.
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Advisor Perspectives welcomes guest contributions. The views presented here do not necessarily represent those of Advisor Perspectives.
