“It’s no accident that the psychology of entire generations is shaped by the milieu in which they grow up; economic research tells us that our lifelong behaviors are determined in larger part by the seismic events – good or bad – of our youth.”

– Economist Rana Foroohar (2010)

Although financial hardships aren’t dramatized in the media the way other issues are, the reality is that poverty and financial strain can pose a significant threat to a child’s welfare. (See our book: Child Maltreatment: A Cross-Comparison for more information.) These situations can produce significant stress and anxiety and a severe disruption to a child’s life. In many situations this ongoing strain leads to poor outcomes that exceed the types of problems caused by traditional forms of abuse.

To the average person who gets most of their information from traditional media outlets, the idea that financial strain can be as harmful as abuse may seem hard to believe. Yet this reality turns up in the data time and time again. Poverty is one of the most powerful predictors of poor outcomes we can measure. If I take a group of abused children from middle-class homes and compare them to a group of non-abused children who grew up amidst poverty, the latter group will consistently be less-well-off as adults on virtually any outcome you can measure.

We’re not telling you this so that you want to run to a corner and cry, or to try and pile more on your plate during this difficult time. We just want everyone to understand what’s at stake so that you’ll be motivated to take steps to limit the potential harm. The good news is that these risks can be mitigated.

The adverse effects from poverty are not about materialism, and they don’t have a thing to do with money itself. Some of the happiest people on Earth are in places that have very little wealth. The problem is that the strains which come alongside poverty take their toll, and our capitalistic society makes it very difficult to avoid these strains. So let’s take a look at how children are harmed by financial stress:

• Children in financially insecure homes feel fear, stress, and anxiety over their situation. The fear they might feel over money (will we lose our home? Will I eat tonight?) is not fundamentally different than the fear they might feel living with someone who hits them.
• Not having money can lead to secondary traumas (Having to move suddenly, being homeless, etc.).
• It puts parents under more stress, which lowers the quality of parenting.
• It creates environmental instability in a number of ways (food insecurity, frequent moves, etc.).
• Children have access to less enrichment activities, both within the home and outside of it. This can stunt their development.
• They have poorer-quality nutrition and are exposed to more environmental toxins such as lead or secondhand smoke.
• It means living in lower-income areas where schools tend to be sub-standard.
• Children in financially insecure households witness more family conflict.
• Poverty can alter a child’s beliefs about themselves and the way they approach life. Levels of optimism, for example, can take a big hit, and this is one of the most important measures for both success in life and psychological health in general. (Seligman, 1990)
• Children from financially insecure homes tend to face more bullying and teasing at school.
• Financial insecurity can interfere with a child’s ability to form secure attachments, because their attachment to things are constantly being broken.
• They are surrounded by a disadvantaged setting in general: their friends and neighbors are less educated, the children around them are coming from a disadvantaged status themselves (meaning poorer quality friendships and more negatively-leaning peer pressure), and the neighborhoods they live in are filled with more violence and crime. The difference in the amount of violence witnessed between a well-to-do child and a financially disadvantaged one is shocking. (Osofsky, 1997)?

Together these things create a powerful force that can become more destructive than outright abuse. The effects are most severe when such conditions persist for extended periods of time, but they can also take a toll even when it comes to economic hiccups families might face, such as the strain that comes from a parent losing their job.

What Children Feel When Their Family Is Struggling Financially

“My dream is to help my family out … help them feel better.”

– An elementary-aged boy, talking about the financial problems his family encountered

Children carry an emotional burden when their family is struggling. They can sense the strain in the atmosphere, and know that something is wrong. They want to help out, but don’t feel that they can. This creates a potent double-negative: high stress and feelings of helplessness.

They become anxious about things like having enough money to buy food or keep their house. They worry about having to move or switch schools. Clinical psychologist Rosalind Dorlen describes seeing a client in Summit, New Jersey, whose son is terrified he’ll have to leave his private school (and all the friends he has in it) and has stopped sleeping as a result. (Horovitz, 2008) They worry about keeping their family together. They worry about you, especially if they see you stressed or fighting over money issues. Children can stress out over money in the same way you do, they merely have different types of worries.

How Financial Instability Affects Parenting

Financial problems create stress, and stress is like kryptonite to parenting. It keeps you preoccupied with the stressful thing, making you seem distant and less involved in other aspects of life. It saps energy, both physically and mentally. It interferes with sleep. It makes you cranky and irritable. It lowers your tolerance threshold for everyday annoyances. All of these things trickle down to the way you interact with your kids. Financial stress can turn an ordinary parent into a preoccupied, less-involved, low-energy, sleep deprived, cranky and irritable person with little patience. What could possibly go wrong?

One study found that even economic uncertainty apart (from outright hardships or poverty) was enough to provoke harsher parenting styles in certain predisposed individuals. (Bower, 2011) Since parenting has a powerful effect on your child’s life, how parents handle this stress will play a big role in their welfare.

When a Parent Looses a Job or a Family Looses Their Home

“Losing a job tests the mettle of the family. The emotional effects, felt by children and spouse alike, can be as severe as the financial consequences.”

– Lawrence Kutner, Ph.D. (1996, p. 77)

Research has found that unemployment leads to more fragile families and harsher parenting. (Sander & Putnam, 2009) Parental unemployment has huge negative consequences for children, making them more likely to fall behind in school, repeat grades, and exhibit anxiety disorders. (Foroohar, 2010)

The loss of a job or the loss of a home can also create identity issues in the parent that lead to disturbances. Manisha Thakor, founder of the Women’s Financial Literacy Initiative, says that guilt over the loss can often spiral into depression or other mental health issues, which only paralyzes the adult further. One woman who endured a home foreclosure states, “There was some strain on our marriage. I developed high blood pressure and gained weight. It was hard to keep the children from seeing us argue, but we told each other we take our wedding vows seriously. That made me confident we could get through this together.” (Simons & Nelson, 2011)