Money Problems Lead to Shame, Which Leads to Making Bad Decisons

Money problems are hard enough on their own—but what if the way we feel about our finances is actually making things worse?

A groundbreaking study published in the Journal of Economic Psychology by researchers Gladstone, Ly, Wilcox, and Mazar reveals a troubling emotional trap: shame doesn’t just follow money problems—it fuels it. Their work identifies a powerful cycle called the financial shame spiral, where people’s embarrassment or self-blame about money leads them to avoid their finances, make worse decisions, and deepen their hardship.

This cycle isn’t just theory. The research included over 9,000 participants in six rigorous studies, ranging from real-world bank data to psychological experiments—even a twin study to rule out genetics and family background. The results are clear and consistent: shame intensifies financial hardship.

What Is a Financial Shame Spiral?

It begins when something goes wrong—maybe you miss a credit card payment, overdraw your account, or rack up too much debt. You feel ashamed. You start thinking, “I’m terrible with money,” or worse, “I’m just a failure.”

Instead of taking action, you choose to avoid the situation. You stop opening bills. You put off checking your bank balance. You don’t ask for help.

This avoidance leads to missed payments, growing debt, and even more shame.

Over time, this turns into a cycle: money problems → shame → avoidance → deeper financial trouble → more shame.

Guilt vs. Shame: The Crucial Difference

Interestingly, not all negative emotions are equally damaging. The study points out that guilt—feeling awful about something you did—can actually motivate people to make changes and take responsibility. Guilt says, “I messed up, but I can fix it.”

Shame, on the other hand, attacks your sense of identity. It says, “There’s something wrong with me.” And that belief causes people to shut down and disengage—especially from their finances.

A Surprising Solution: Kindness

Here’s the hopeful part: the researchers discovered that a simple kindness-based intervention could help interrupt the shame spiral.

In one experiment, the researchers asked participants to recall a moment when they showed kindness or compassion to someone else. This act of remembering helped them feel a renewed sense of worth—reminding them that they are more than their bank balance.

The result? They were significantly more likely to re-engage with their finances, take action, and stop avoiding the problem.

Why This Matters

This research challenges the common idea that financial struggles are just about bad choices or poor budgeting. It shows that emotions—especially shame—play a huge role in keeping people stuck.

It also highlights the importance of compassion, both from others and from ourselves. Financial literacy alone isn’t enough. People need emotional support and self-worth to climb out of hardship.

The Takeaway

If you’re struggling with money, it doesn’t mean you’re broken. Feeling ashamed is common—but it’s also a trap. The first step to getting out of that trap might not be a budget spreadsheet but a moment of kindness: reminding yourself that you are still worthy, still capable, and still human.

And if you’re trying to help someone else through financial difficulty, remember: judgment feeds the shame spiral. Compassion breaks it.

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Based on Gladstone, J. J., Ly, K., Wilcox, K., & Mazar, N. (2021). “Financial shame spirals: How shame intensifies financial hardship.” Journal of Economic Psychology.