Here's what you need to know about credit card reward points
Perhaps you've seen someone relishing their business class upgrade, partly 'paid' for with points, on social media.
But, Angel Zhong — a professor of finance at RMIT University in Naarm/Melbourne — says points also come with risks.
If credit card point programs are a mystery to you, here's what you need to know.
Credit card rewards schemes, including point programs, vary from lender to lender, but the basic principles of each have a lot in common.
Professor Zhong says, "it really depends on the specific terms and conditions, but usually you get points for every dollar that you spend."
Reward points can then be spent on perks and benefits which differs between credit cards and institutions, but can include gift cards, retail purchases and discounted travel offers.
These type of credit cards may "also offer exclusive perks", such as "access to airport lounges, travel insurance and concierge services".
The government's MoneySmart site says credit card reward programs "sound good" because "you could earn points you can use to buy movie tickets or flights" just by spending on the card.
Toni Eager is a senior marketing lecturer at the Australian National University in Canberra, on the land of the Ngunnawal and Ngambri people.
She says rewards schemes, including points are "a way of keeping customers".
"People might like certain reward schemes more than others, or it's something that keeps people using the card that they already have rather than going out and looking for cheaper interest rates."
Dr Eager says consumers need to be financially literate to get good value from reward points schemes, which reward spending.
"Whether it encourages people to overspend or changes their spending habits comes down to financial literacy."
Consumer group Choice says credit cards are not for everyone.
"Unless you're a big spender, credit cards with rewards schemes are mostly a gimmick, and they nearly always charge hefty annual fees and high interest rates."
These costs can "easily nullify the rewards".
Professor Zhong also says to be mindful that "you pay for what you get." Credit cards with extra perks will also have higher fees and interest rates.
"It makes them more costly if you don't pay your balances in full or on time."
She also warns that banks and lenders can change their loyalty programs including the value of points, and points can also expire.
"Read the terms and conditions carefully, especially when it comes to the changing value of your points."
Prfoessor Zhong says, "point hackers" are people who regularly open and cancel credit cards. The practice is known as "credit card churning".
"You open multiple credit cards to take advantage of the bonuses, and then you close them and repeat the process again with new cards."
She says many lenders waive the first annual fee for these types of credit cards, which can also come with bonus offers (additional points or cashback for example) and a zero per cent balance transfer fee for a set period.
The card can then be cancelled before the annual fee for the second year is charged.
Initial bonuses usually come with conditions, such as "spending a certain amount in the first three months".
Professor Zhong says credit card churning can lower your credit score, and "frequent credit card application and cancellation might be a bit of a red flag" if you're applying for a mortgage.
Doing this with different credit cards simultaneously increases the risk you miss a repayment, or you fail to make full use of the rewards, she says.
MoneySmart recommends looking for a low interest rate and features you'll use in a credit card.
If you're considering a credit card with a reward scheme, "check if the benefits you get are worth the higher cost".
Professor Zhong says to "choose a card that aligns with your spending habits so that you can maximise the points [and] maintain a healthy financial lifestyle".
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You probably can't. How would you fund it? Could you fund it with a tax on AI? The problem with that is that you want to encourage the use of AI. You don't want to tax it. Taxing something discourages its use. So you want to actually, if anything, you want to lower the tax on AI so that people are more inclined to use it so that productivity improves. So, you know, it's kind of difficult to get your head around. But I guess that's what you get 25 smart people in a room for. Sydney Pead: Yeah, that's right. So they could potentially strike the right balance there and improve the economy and productivity at the same time through AI. Moving on, let's talk a little bit about what other changes could come out of this roundtable. There's one change you think might be possible to try, which could balance the budget and look after more people. But a lot of people will hate hearing this from you, Alan. We should perhaps raise the GST. And by how much? Alan Kohler: Well, look, there clearly does need to be more tax revenue. We've been through this before. In 1985, Bob Hawke and Paul Keating held a tax summit because there wasn't enough tax revenue. And they went to that tax summit with three proposals. One was the GST. Another was the capital gains tax. And the third thing was fringe benefits tax. And the tax summit happened in 85. And two of those three things got up. The GST did not. Treasury also said the same thing to John Howard in 1998 and said, you've got to have a GST. And so he went back on his promise not to have a GST. So we got one in 2000 because tax revenue fell short. And now it's fallen short again. So the question is, do we come up with another new tax as we did in 85 and 2000? Or do we basically just increase the ones we've got? And everyone's agreed that we've got too much tax revenue coming out of income taxes. I'm not sure this is right. But anyway, it seems to be a consensus view. And you need to also have a lower company tax rate because company taxes are coming down around the world and you kind of lose, you lose companies. They move. The only thing left really is GST. And the average GST around the world is between 15 and 20 percent. So increasing our GST from 10 to 15 percent would not be out of line with the rest of the world. Also, we exclude a lot of stuff like food. And so the proposal would be to increase the rate and to broaden the base so that you pick up more things. The problem with the GST is that it's regressive, not progressive like income taxes. That is to say it affects poor people much more than the well-off because they tend to spend more of their income on things that are subject to GST. So how would you make it less regressive? And Richard Holden and Rosalind Dixon, who are professors at the UNSW in Sydney, came up with an idea, which is did you have a tax-free threshold of GST? They proposed 12,000 a year, 1,000 a month. So all spending up to that amount per year would be GST free. Sydney Pead: And so what, the taxpayer would then get that money back each year? Alan Kohler: Well, that was the idea. I mean, I rang Richard Holden up and said, you know, how would you do that? How can the government possibly know what each person is spending? And the answer is he said, well, you don't have to know. You just give back the GST on that 12,000, which is $1,800. He reckons it should be in two lots of 900. So every six months you get a lump of 900 bucks in your bank account. Just means that you've, you know, you're getting back the GST you've paid on the first $12,000 of your spending each year. And I think that's a very interesting proposal. Sydney Pead: Yeah. Something that they could talk about at the round table, perhaps. Alan Kohler: Well, he reckons that you'd end up with a net extra $45 billion in revenue, which you could use to cut income taxes as well as balance the budget. Sydney Pead: Okay. Many voters would say the government does just need to balance the budget and spend less. Is that an option? Alan Kohler: Well, of course they say that. And yes, that's good in theory, but really it's the community, it's Australian society that puts the demands on the government. You know, the big things are not that available to change. You know, I mean, we've got the NDIS now and it's the Australian community has decided to look after disabled people better than we have in the past. Now, I think that the growth in the NDIS is keeping the treasurer and treasury awake at night because it's growing too quickly, but no one's suggesting any big cuts in the NDIS. And they're not going to cut the aged pension and they're not going to cut, you know, healthcare in general, because apart from anything else, the population is ageing. Actually, healthcare costs are going to increase inevitably. There's nothing they can do about it. And now also there's pressure to increase defence spending. We've agreed to this AUKUS thing where we're going to spend billions of dollars on nuclear submarines. So I just think that the pressure on the budget is such that there's nothing they can do about it. Really, the only thing they can do is increase tax revenue. But I mean, all of the business group representatives, business counsellors, etc. at the roundtable will say that, oh, no, you've got to cut spending. And so they'll end up having an argument that'll last all day about that and waste, just waste time. Sydney Pead: And they should be talking about AI after all. Alan Kohler: I think so. That's right. Sydney Pead: Alan, thanks so much. Alan Kohler: Not at all. Sydney Pead: Alan Kohler is the ABC's finance expert. This episode was produced by Kara Jensen-Mackinnon and Sam Dunn. Audio production by Adair Sheppard. Our supervising producer is David Coady. I'm Sydney Pead. ABC News Daily will be back on Monday. Thanks for listening.
