The reward loop: How credit card perks can hurt your long-term wealth plans

Thursday, 16 October 2025

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The allure of credit cards and the rewards they offer are often dangled in front of bank customers, but used in the wrong way, they can quickly derail your long-term wealth building plan.

Sam*, a young Stuff reader currently saving to buy her first home, keeps hearing from friends and the online community that not having a credit card could negatively impact her credit rating and hinder her ability to secure a mortgage. She has long had a strong aversion to unnecessary debt and thus never applied for a credit card.

But, she now questions whether this is a bright move, especially when you factor in all the appealing rewards that come with spending on a credit card. By avoiding a credit card is she turning a blind eye to potential long-term wealth building? Does she need a credit card to build a credit rating? Are any of the rewards actually worthwhile when considering your larger financial goals? And are there credit card alternatives that offer benefits geared toward longer-term financial planning?

Sam is part of a growing cohort looking to build long-term wealth without making the mistakes the previous generations have by leaning too much into products that prioritise short-term gratification over sustainable financial growth. This shift in perspective is crucial for anyone focused on long-term financial security.

Building Credit: Fact or Fiction?

It’s easy to find the old refrain that you need credit to build a credit score, but this simply isn’t true.

“You can build your credit score by paying your bills on time,” says Tom Hartmann, from the Retirement Commission, explaining that showing evidence of managing your money responsibly demonstrates the consistency required for lenders to trust your ability to manage future loans, like a mortgage.

Credit cards also pose a risk because they so often incentivise shorter-term spending, rather than long-term financial growth.

Having a credit card has a psychological effect, says Hartmann, in that it creates the impression that you have more money available than you actually have, encouraging you to spend more. This is an insidious form of lifestyle creep that makes it harder to save or invest, fundamentally derailing the path to wealth.

True cost of rewards

The thing to remember is there’s no such thing as free money. Credit cards only offer lucrative rewards because someone pays for them. That someone is the customer, even if not directly.

A spokesperson from BNZ explained “card rewards are funded from the revenue generated by the card product,” which means interest payments and annual fees play a critical income-generating role for the bank, allowing those rewards to exist.

The best rewards are usually restricted to credit cards rather than debit cards, simply because there’s such a clear mechanism (high interest) to pay for them.

Said another way, credit card holders indirectly subsidise the rewards on these schemes. If you are focused on building wealth, there are simply better ways to use your time or energy than trying to game the rewards scheme to maximise earnings.

Consumption incentives vs investment incentives

Moneyhub founder Christopher Walsh tells Stuff that “no amount of rewards is going to repay the cost of the interest, which you'll incur' if you don’t pay your bill on time. Even a brief period of carrying a balance can completely wipe out any reward benefit, converting what looked like a gain into a net loss for your total wealth.

Those who are bigger spenders and pay the balance off each month could derive some decent benefits from tapping into rewards, says Walsh, although you have to accept these for what they are: consumption incentives, rather than investment incentives.

Rewards like travel points, restaurant deals and even points earned in an app are always made to be consumed rather than invested. This is about instant gratification, rather than long-term investment in your future wealth.

Bridging the gap

A new financial product is attempting to bridge the gap between consumption and investment by directly linking transactional spending with long-term investment, but this is easier said than done.

Investment platform Sharesies, in partnership with Mastercard, has launched a new debit card featuring a unique reward structure. The core mechanism, Sharesies Personal GM Scott Nixon tells me, involves cardholders earning $1 for every $100 spent on eligible purchases.

The product's most notable characteristic is the nature of the reward itself. The funds are not issued as standard cashback or redeemable points. Instead, they are automatically invested into the cardholder's account through the Sharesies app.

The incentive for Sharesies (there’s always one) is that by habituating investment activity in the long term it allows the company to make more money through the fees it charges for both investing and currency exchanges on international share purchases (the card also carries an annual fee).

And as with any rewards programme, caution is advised. While marketed as a pathway to effortless investment, the incentive is fundamentally tied to an increase in transactional activity. It could become tempting for some individuals to chase greater rewards by spending more, which runs counter to long-term financial planning.

The advantages will dissolve if chasing rewards becomes the priority over longer-term plans. Used in the right way, the small incremental investments can help to instil the longer-term investing habits that allow for the development of a decent portfolio. But, much of this depends on the commitment and self-control of the card user, which is difficult when considering the impact reward schemes have on our minds.

Your brain on rewards

There is some deliberate behavioural science thinking integrated into any rewards programme, however good it might look on the surface.

When people receive points, discounts, or perks for spending, it activates the brain’s reward system and releases dopamine, which makes the behaviour feel good and worth repeating. Over time, this creates a loop: spend, get rewarded, feel good, repeat.

It becomes a powerful mental nudge, which encourages you to take action (spend more) to get the expected reward.

This applies whether it’s a debit card, a credit card or a video game – and it can result in the development of habits that become entrenched over time.

If the wrong habits become entrenched, they can incrementally damage your longer-term financial strategy without you even realising it.

The key is to remain clear-eyed and understand that rewards aren’t a freebie. They’re always a tactical tool used to encourage a certain type of behaviour – and that behaviour isn’t always aligned with your long-term financial planning.

*Name changed to protect identity of reader.