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South Africa has a history of trauma and Gugu Sidaki writes that she has witnessed her fair share. But aside from its emotional impact, trauma can also affect our financial decisions. Sidaki explains how to make better choices.
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Growing up, I believed that widows always had a hand in their husbands’ deaths because, in my experience, when black men died, this was the suspicion. There was often an attempt to strip widows of their possessions, and frequently they were horribly mistreated.
Money is at the heart of this very cruel practice, and a lack of estate planning exacerbates the issue.
The contention is usually that the money of the deceased could have been better spent during their lifetime and there is talk of who it should have been left to, with very little to no regard for the most vulnerable of all in these cases – the children.
This is one example of many harmful practices that result in trauma, which ultimately affects one's view of, and behaviour with, money.
Trauma and poverty affects your genes
There is now quite a bit of research that confirms that trauma alters a person’s DNA, which in turn gets passed down to the next generation.
The Centre for Health Care Strategies, which designs policies for millions of Americans accessing healthcare through Medicaid, defines trauma as "exposure to an incident or series of events that are emotionally disturbing or life-threatening with lasting negative effects on a person’s functioning and mental, physical, social, emotional, and spiritual well-being".
In other words, trauma affects everything and even more so when experienced in childhood.
The Adverse Childhood Experiences (ACE) Study, by the US’s Centre for Disease Control and Prevention, is one of the largest and most cited studies on trauma and its effects. It found that well over 60% of adults surveyed have experienced some sort of trauma in their formative years, including:
- Experiencing neglect;
- Witnessing violence;
- Death of a parent; and
- Poverty (shown to be a strong factor in accumulating ACEs).
Trauma, poverty and your money
Interestingly, the research shows poverty leaves a mark on approximately 10% of the genes in the genome, and is also linked to changes in a child’s DNA structure. Those exposed to it perceive higher levels of danger and this has a significant impact when it comes to your appetite for investment risk.
There is also a link between trauma and struggles with personal finances. Trauma results in lower self-confidence and difficulty with emotions which, in turn, creates barriers to experiencing financial well-being and financial health.
Typical trauma-related financial behaviour includes impulse spending, over-indebtedness and general disorganisation in personal finances.
Witnessing poor money management in your family increases the chances that you emulate that behaviour as an adult.
This research rings true in South Africa, where many have experienced trauma and poverty and there is a high correlation with the number of people whose personal finances are not in good shape.
Statistics show South Africans have a poor savings culture and are spending, on average, well over 75% of take-home pay to service debt.
The vast majority of us are not saving enough for retirement resulting in only 6% of retirees being able to maintain their living standards. The rest depend on the state or family or are forced to continue working.
Middle class still carries struggles with money
Despite the issues faced, we have come quite a long way as a country, as we now have a growing middle class that is becoming more financially astute and seeking the services of financial advisers.
It is understandable why some of them still struggle to manage their money effectively and why conversations about money are still taboo.
Many are dealing with trauma-related consequences and there hasn’t really been an effort to help them unpack or overcome these issues. Many still manage their affairs with dread and secrecy – beyond what is comprehensible. A lot of it is trauma-related and stems from a history of poverty, lack of information and, sometimes, harmful cultural practices.
How do we get out of this?
Even people who have not experienced terribly traumatic events themselves are likely to have inherited the effects of trauma through their DNA which can also have a direct impact on their financial behaviour.
We all have our emotional baggage, or grief cases, and for many of us, a budget alone won’t get us to that desired financial position. We need the basics, such as protection against financial risks, investments, a cashflow plan and estate planning, but the work doesn’t end there.
We also need to be more aware of how our history and trauma affect our interaction with money and appreciate that it will take some work to improve our behaviour and future with money.
Speaking to a professional financial adviser who understands these issues is a great starting point. An adviser will help you unpack the following:
- The costs and taxes due when you die, the people who will be affected by this and how to be sure your family has what they need after your death.
- The impact that your marital regime has on your finances and your heirs.
- How to plan effectively for your financial security should you live beyond retirement age.
- How to have those difficult money conversations with your loved ones regarding their current and future financial support.
- Your emotions and your personal finances and a healthier relationship between the two.
This article was first published on SmartAboutMoney.co.za, an initiative by the Association for Savings and Investment South Africa (ASISA).
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