In Context: Nonparticipation and Financial Trauma


In her latest pieces exploring the trauma data gap, visiting scholar Chloe B. McKenzie dove deep into qualitative research on financial nonparticipation. In this three-part series, she covered how opting out of engaging with the financial system is not a personal flaw or failure, but rather a trauma response intended for self-preservation.

Read the series:

Part One: “The Myth of the Financial Personality Defect”
Part Two: “Limited and Nonparticipation by Design”
Part Three: “Limited and Nonparticipation as a Trauma Response”

In conversation with Chloe, and while absorbing and processing her compelling research, our team kept revisiting several themes presented in the series.

Centering financial trauma brings nuance to how we think about the racial wealth gap. 

With nonparticipation as one contributing factor to the persistent gap between the wealth of white families and the wealth of Black, Hispanic, Native and other BIPOC families, interventions that ignore the role that individual and generational trauma plays are missing important context. As the body of research around wealth equity expands, the added lens of financial trauma can point to more thorough solutions that are less likely to perpetuate harm. 

There is a power imbalance between institutions and individuals, which is further exacerbated for historically marginalized communities. 

As Chloe stated in Part Three of the series, “There’s so much information missing when we make conclusions about what’s going on in our financial lives.” This is true for the financial education field as well: We often fail to look at the full picture when making recommendations or decisions on how to educate or inform on topics in personal finance—including individuals’ lived experiences, personal values and potentially traumatic experiences engaging with the financial system.  
Efforts to bring people into the financial system may be well-intentioned, but often fail to recognize the historical and ongoing harm to consumers brought on by informational imbalances and predatory practices. Work to expand financial inclusion, such as initiatives at the Aspen Institute, are a step in the direction of building an economy that serves people, families and communities, and truly builds equity and wealth justice.  

Financial decision-making is personal and emotional. 

The Personal Finance Ecosystem states that financial well-being is not a single endpoint; instead, it is an ever-present state that fluctuates over time and means something different for everyone. The Ecosystem also considers myriad foundational factors that are experienced uniquely by each person. Taken together, frameworks like the Ecosystem support the notion that there is no one-size-fits-all approach to increasing financial well-being.  
As such, financial education cannot be reduced to building vocabulary or doing mathematical calculations. To advance financial and economic wellness takes an understanding of not only someone’s internal values, needs, and goals, but also the socioeconomic systems around them. Chloe’s work demonstrates the pervasiveness of financial trauma and how it often obstructs people from fully realizing their most satisfying financial lives. It also shows how these outcomes are the result of a system working as designed. By intentionally drawing attention to the system, we can help people to better navigate it. At the very least, we can show them it is not their fault.  

Data are important and context is key. 

Chloe’s research interrogates and tests assumptions that are central to the financial well-being field. Her work, and the work of other thinkers and scholars, is crucial in creating a world in which everyone can build their best financial lives. But the field only advances when we take concrete action in response to what we learn. As a research-focused organization, we are invested in several initiatives to further this work:  

  • Collaborating with Chloe to build a scale using mixed methods that measures financial trauma. 
  • Working with the research community to validate existing financial education scales for cultural humility and racial equity. 
  • Changing our public opinion polling process by oversampling based on an intersectional approach to create more inclusive datasets and foster equitable recommendations.  
  • Deploying NEFE’s research funding to investigate systemic inequalities and wealth disparities, and to examine bias in data and methodologies. 
  • Capturing individual stories, in an array of formats, to support policy and advocacy efforts. 
  • Building on the Personal Finance Ecosystem, which gives context to the complex factors that underpin an individual’s financial well-being. 

We also want to challenge others in the financial education and well-being field to read, think and discuss how financial trauma and nonparticipation factor into how organizations advance their missions. We offer the following to start: 

  • For Researchers: This work highlights the importance of scales and measures that articulate gaps in the research, as well as the need for better data through oversampling, mixed method approaches, and the inclusion of unheard voices—both in the data and from emerging scholars. Consider adopting a shared lexicon and conceptual definitions surrounding financial trauma and wealth justice. Intentionally create more cross-disciplinary investigations, such as connecting with mental health literature and researchers when conducting financial wellness research.  
  •  For Policymakers: Nonparticipation is a trauma response, but it can also be a policy decision. Where are policies excluding populations? Consider the simultaneous need for a federal financial inclusion strategy and local strategies. There is value in proximity: Engage those closest to the problems in the solutions. Consider the longtail effects of legislation and broader ripple effects. Include financial aspects in well-being legislation. 
  • For Advocates: There is power in sharing individual stories for systemic change. Discuss the roots of nonparticipation and advocate for information transparency and clearer information for consumers.   
  • For Educators and Counselors: When financial trauma is not placed in context, the result is inaccurate conclusions and harsh judgment about financial behavior. Financial education should not be punitive—blame and shame must be removed. Intentionally address systemic inequities and bring awareness to the system that exists, when and where individuals could be vulnerable within the system, and how individuals can best navigate it. And finally, explore the many layers of financial behaviors and decisions—and values—with students and clients.  

More from NEFE’s visiting scholar series with Chloe B. McKenzie: 

“Trauma After Trauma: Navigating Financial Anxiety in the Postpartum Period” 

“Understanding Racial Trauma's Impact on Financial Literacy” 

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