How much does our personal history shape the way we save, invest and take risks?
On the Abante blog, we explore the concept of the “invisible backpack” that each of us carries into every financial decision: the experiences, beliefs, emotions and cognitive biases that often influence how we manage money without us even realizing it.
Because improving our relationship with money is not about eliminating emotions—it is about understanding them and putting our wealth at the service of what truly matters.
Everyone approaches money carrying an invisible backpack. It was formed long before anyone taught us how to invest or manage our finances: around the family dinner table, during times of scarcity or abundance, and by watching the first financial decisions made by those around us. That backpack does not disappear when we open an investment account or check the markets. On the contrary, it quietly shapes many of the decisions we make.
Morgan Housel captures this idea in his book The Psychology of Money: “Your personal experiences with money make up maybe 0.00000001% of what’s happened in the world, but maybe 80% of how you think the world works.” It is not a matter of intelligence or financial education. It is a matter of personal history.
Where does your relationship with money come from?
Two people with the same education, the same income and the same financial adviser can react completely differently to the very same market event. One sells when markets fall, while the other stays invested. It is not that one is more rational than the other. Rather, each has learned to relate to money in a different way, shaped by experiences the other has never had.
Someone who grew up in an environment of financial uncertainty, or who watched their family lose significant wealth during the 2008 financial crisis, develops a relationship with risk that can be difficult to understand from the outside. Market downturns are not just numbers on a screen; for many investors, they trigger memories and fears that no spreadsheet can quantify. As Housel writes: “Spreadsheets can model the historical frequency of big stock market declines. They cannot model the feeling of coming home, looking at your children, and wondering whether you’ve made a mistake that will impact their lives.”
Recognising this is not a concession to irrationality. It is the honest starting point for making better financial decisions.
The elephant and the rider
Belén Alarcón, Partner and Head of Wealth Advisory at Abante, often uses a metaphor that illustrates this perfectly: the elephant and the rider. The elephant represents our emotional, impulsive, short-term self. The rider is our rational side—the one that plans ahead and keeps the long term in mind. Both are present in every decision we make. The problem is not that the elephant exists. The problem is failing to recognize that it is there.
When markets decline and our instinct is to sell, it is usually the elephant taking control. The same happens when we endlessly postpone financial planning because we think “there will be time later.” And when an investment performs well, we credit our own skill; when it performs poorly, we blame bad luck. Once again, emotion is driving the narrative.
In professional poker, this bias has a name: resulting—judging the quality of a decision solely by its outcome rather than by the process that led to it. Óscar Fernández-Capetillo, scientist and professional poker player, discussed this concept during an Abante conference on Annie Duke’s book How to Decide. A decision can be the right one even if it produces a poor outcome, because uncertainty can never be completely eliminated. What matters is whether the reasoning behind the decision was sound at the time it was made. Over the long run, those who consistently make good decisions tend to come out ahead, even if they do not win every hand.
The biases that challenge us the most
These are not character flaws. They are mental shortcuts our brains developed to survive in a world very different from modern financial markets.
The first is loss aversion. Losing hurts more than gaining the same amount feels good. This helps explain why so many investors sell during the sharpest market declines—precisely when a long-term perspective would suggest holding, or even buying.
The second is confirmation bias: our tendency to seek information that reinforces what we already believe while ignoring evidence that challenges our views. In today's constant flow of financial news and opinions, this bias can be extremely costly.
The third is the illusion of control. When things go well, we attribute success to our own ability; when they go badly, we blame external circumstances. This prevents us from learning from experience.
The fourth—and perhaps the most subtle—is what Housel describes as the trap of social comparison: the feeling that what we have is never enough because someone else always has more. As he puts it: “The ceiling of social comparison is so high that virtually no one will ever reach it. The only way to win the game is to avoid playing it in the first place.”
A different perspective
Improving our relationship with money begins by understanding our emotions, not trying to suppress them. It means recognising the personal history through which we see the world, identifying the fears we project onto our financial decisions and distinguishing inherited beliefs from objective facts.
The first question to ask is not how much money we have, but what we want money to do for us. What role should it play in our lives? That seemingly simple question changes everything. It takes money off the pedestal and restores it to its proper place: as a tool that supports a meaningful life.
Because the decisions that truly create wealth are not those that maximise short-term returns. They are the ones made with clarity, a long-term perspective and the confidence that our money is working toward what genuinely matters.
By Abante
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