Morgan Housel writes about the phenomenon of thinking about things as either fees or fines in The Psychology of Money. Fees are the cost of getting something; fines are penalties for doing something wrong. The distinction between the two is important because both fees and fines provide feedback loops that influence our behavior. When we get them confused, we stop doing that which might actually benefit us.
Fees
Goods, services, and experiences are all things we have to pay for; they rarely come free. That cost is a fee. It’s the price required to get something. And it’s something we are conditioned to expect.
For golfers, it’s not enough to buy the necessary equipment. They must also pay to play. It’s a fee that they expect when joining a club or driving to a course.
Housel uses the example of Disneyland in The Psychology of Money.
Disneyland tickets cost $100. But you get an awesome day with your kids you’ll never forget. Last year more than 18 million people thought that fee was worth paying. Few felt the $100 was a punishment or a fine.
Fees are the price we pay for admission.
Then there are fees that aren’t as clearly desirable as a ticket to Disneyland. Taxes, for one, is an example of this type of fee. Many societies have structured themselves to have members of the community contribute to causes for the good of the group. Such causes include infrastructure, education, and support of their more vulnerable individuals. Taxes are a fee for being a member of that society.
Similarly, nature is savvy to paying fees. Take a plant that produces fruit. The fruit attracts animals who then eat the fruit and disperse the seeds elsewhere, promoting growth in the species of that plant. The fruit is a fee the plant has to pay in order to incentivize animals to spread its seeds.
Fines
Fines are similar to fees, but their purpose is to dissuade people from certain behaviors. For example, parking fees are a type of expense we have to pay in order to enjoy the privilege of parking in a certain lot or garage. But parking in the wrong spot, at the wrong time, or without paying the fee results in a fine.
Fines are feedback, informing us that our behavior is not desirable and should be corrected.
As mentioned before, taxes are fees for living in a certain society. But failure to pay the correct amount of taxes within a specific time period is punishable. That’s a fine intended to dissuade the offender from repeating that behavior.
What Does it Mean?
Fees and fines can both feel bad so they are easy to get confused. That’s why we must be diligent in striving to understand what we are actually feeling. Saying, “This doesn’t feel good,” is a good start but stopping there is not helpful.
To push further, we need to ask ourselves an array of questions. What does it mean? Why do I feel this way? What’s the point of it? Does this feeling mean that I shouldn’t be doing this, like touching a hot stove? Or is this a discomfort I need to push through, like tiring during a race?
Asking questions leads us to further analyze feedback so we can respond in a more productive way.
Putting it All Together
Fees are the bar we must hurdle to gain something. Fines are penalties for doing something wrong. It’s important to build the habit of distinguishing between fees and fines. Failure to do so leads us to prioritize things incorrectly. If we think a fee is a fine, we will try to avoid it. And for positive elements that don’t feel good in the short term, we have to understand they are fees that pay off in the future.
But just because we have to pay fees for good experiences like going to Disneyland or playing golf doesn’t mean that we shouldn’t try to reduce the fee. Using credit card points, coupons, or finding sales allows us to pay less for the same experience, instantly increasing our return (price paid versus value gained).
Likewise, fines may be negotiable. Lowering what we need to pay as a fine lessens the pain we feel, which is often desirable. But it also decreases the magnitude of the feedback, which can lead to repeat transgressions, resulting in more fines and a slower learning process.
But in order to get to the point of negotiation, we have to correctly identify the situation. We have to know if we are paying a fee or a fine.
Avoid fines: they are usually not worth paying. But above all, learn from them.
Determine the value of fees. When the value equals or exceeds the cost of the fee, pay the fee. And, importantly, enjoy the value you gain; don’t obsess over the fee you spent.
