I have struggled over the years with the reward/points idea. For me, the struggle is between intrinsic and extrinsic rewards or what can feel like "bribery." I've gone from both extremes and now I guess I fall somewhere in the middle.... I think God can use anything to reach the hearts of kids...
We used to use points in our Wed. night program with prizes redeemed at certain times. We now use tickets on Wed. night (we have an outreach ministry to kids in our neighborhoods who are generally significantly under the poverty level) -- tickets are awarded for attending, bringing friends, bringing Bible, learning memory verse. Twice a year kids redeem their tickets -- in August to purchase needed school supplies and in December to purchase gifts for family/friends. It works well in this setting.
In SS, we don't have points, but we do reward kids who memorize the monthly memory verse with a little laminated dog tag. At the end of the year kids who have memorized at least one receive a ribbon, kids who have memorized all 12 receive a trophy. We also reward kids who memorize the books of the Bible -- this year we let them choose their reward. Guess what they chose? To come to church in their pajamas! NEVER would I have thought of that one! So, in 2 weeks we'll be having a big pajama party during SS!
I have seen that the trophies are incentives for some kids. And I think that's a pretty big accomplishment. There are probably other (?better) ways to recognize their accomplishments -- name in bulletins, pictures on display, personal letter home -- and we might add some of those this year.
I DO love the concept of "levels" and encouraging kids who want or are ready to go deeper to do that. I've had a really young and fairly immature group this year and it has felt as if I had to lower our expectations/standards a bit. I worry that the one or two kids who ARE ready for deeper aren't getting what they need.