4 steps for overcoming guilt and shame from poor money decisions

Financial shame can take many forms, but at the core it’s about feeling inadequate around money — as if there’s something fundamentally wrong with you. The psychological side effects are real. Financial shame can chip away at your self-esteem and create a cycle that makes financial hardship even worse. 

The good news is that it’s possible to convert shame into confidence. 

How financial shame manifests

Financial shame encompasses more than just regrets over how you’ve spent money in the past. Sometimes financial inaction can feel just as shameful. According to a 2022 Consumer Affairs survey, more than a quarter  of Americans said they felt “major regret” about not negotiating their salary more often. That can have a ripple effect that impacts your future earning power.

Financial shame often goes hand in hand with long-term financial planning. More than 75% of Americans regret not investing and saving for retirement earlier in life, according to one MagnifyMoney survey. 

Money shame can also stem from chronic overspending, being in debt, or feeling like you don’t earn enough to support your desired lifestyle. One 2022 survey found that 61% of the U.S. population is living paycheck to paycheck. Even if you’re meeting your financial obligations, shame can still exist if you feel you’re struggling to keep up with others.

The psychological effects of financial shame

According to financial psychologist Brad Klontz, the heart of financial shame is the belief that everyone else seems to be doing okay except for you. 

However, he makes an important distinction between shame and guilt. 

“Guilt is, ‘I feel bad I did something wrong.’ That’s a good thing to have,” he says. “Shame is, ‘There’s something wrong with me.’ I refer to it as an emotional glue trap because it just makes you stuck.”

Shame can powerfully shape how we see ourselves. As described in research published in Europe’s Journal of Psychology, experiencing shame triggers a perceived devaluation of the self, which seems to lower self-esteem. That feeling can develop into “trait shame.” This is characterized by painful negative feelings that can be downright crippling — like inferiority, helplessness, despair, and the desire to hide our flaws from others. In other words, there appears to be a negative correlation between shame and self-esteem.

According to research published in Organizational Behavior and Human Decision Processes, shame can drive and exacerbate financial hardship. One may fuel the other. Shame tends to induce financial withdrawal, which can set the stage for counterproductive financial decisions that only make matters worse.

Klontz views the origin of financial shame through a social lens and tribal mentality. From an evolutionary standpoint, he says that humans have spent most of their time on earth in hunter-gatherer bands of closely related people. Not belonging to the group was a threat to your survival.

“All that’s to say that if you have less than everyone else or you have more than everyone else, you now feel like you don’t belong to the tribe,” he says. 

That’s why people can feel shame around not having enough money — or being wealthier than the people closest to them. Either way, shame is often wrapped around the desire to keep your shortcomings a secret.

“You’re with your friends, you’re out shopping for stuff, you buy stuff, and you can’t afford it,” Klontz says. “If they knew how much credit card debt you had, would they laugh at you? Would they think you’re an idiot? Meanwhile, they have credit card debt too. It’s a secret. Part of keeping up with the Joneses is trying to avoid feeling shame.”

How to cope with money shame

Shame and vulnerability researcher Dr. Brené Brown has pinpointed four key steps in shame resilience. To move through shame, she suggests engaging with it instead of withdrawing and pulling away from it. For financial shame, this may look like:

1. Recognizing shame and understanding its triggers: This involves taking a close look at yourself and the specific financial issues that trigger shame. What does financial shame look and feel like for you?
2. Practicing critical awareness of the influences leading to shame: Where does your financial shame come from? Is it rooted in your parents’ relationship with money? What beliefs did you grow up with around money?
3. Reaching out to others: Confiding in a compassionate friend or family member who’ll listen without judgment can go a long way in overcoming financial shame. In a now-famous TED Talk, Dr. Brown says: “Empathy is the antidote to shame. If you put shame in a Petri dish, it needs three things to grow exponentially: secrecy, silence and judgment. If you put the same amount of shame in a Petri dish and douse it with empathy, it can’t survive.”
4. Naming shame when it occurs: Shame won’t magically disappear overnight. Doing the work means paying attention and noticing financial shame the next time it rears its head. This can help you recognize it for what it is, instead of getting swept away in it.

Klontz adds that financial stress is the rule, not the exception. Stress related to money and inflation is at the highest level recorded since 2015, according to the American Psychological Association. Looking outside yourself and seeing that most people struggle with money in one way or another can help neutralize financial shame.

“When it comes to money problems, I think it’s helpful to know that everybody’s crazy when it comes to money. We’re wired to do it all wrong,” Klontz says. “The message is you’re not alone.”

Financial therapy can be helpful

Financial therapists blend financial education and psychotherapy. It’s a hybrid between financial planning and mental health counseling. The goal, according to the Financial Therapy Association, is to advance mental, financial, and relational well-being. 

Therapy could provide a safe space to unpack financial shame and learn coping mechanisms to move past it. It might include journaling or cognitive behavioral therapy techniques like examining your thoughts and beliefs around money.

Diving into your upbringing and what you were taught about money as a child can be helpful too, Klontz says. “The craziest money behaviors make perfect sense when you understand somebody’s upbringing, experiences and beliefs around money.”

Financial education, like learning how to make a budget or improve your credit score, can also help people overcome money shame. “But you have to get over the emotional glue trap that’s keeping you stuck,” Klontz says. “When you’re ashamed, you don’t want anybody to know. You want to go hide in the corner. You don’t want to be seen. Once you get through that, then you can take action, which is when you feel empowered.”