We give our kids allowance beginning when they turn 5. I hate the term "allowance" and would rather call it a salary, but they didn't go along with that.
Our children must earn their allowances. They have specific chores for each day of the week. Things like sweep the kitchen and entryway, vacuum the living room, wash the lunch dishes, etc. The chores are on top of keeping their rooms clean and doing their school work. These things are their jobs as children in our home.
As with any job, the people in charge ( their parents ) expect them to do the things on their to-do lists without having to be nagged or followed around. They get one free reminder per day in addition to the jobs' being posted on the white board in our kitchen. Every additional reminder costs them. We used to ground or spank. I've tried yelling and pleading, but docking their pay is the most effective thing I've found.
Every Friday night, we call them together, and the Computer Guy and I pay them. We then discuss any problems we've had during the week and they must pay us back out of their allowance for whatever they were docked. ( Example: I paid #2 his $5. He had a week where he had to be constantly reminded to do his chores and his school. He actually tried to sneak not doing his math 2 days. He had to pay us back $3 out of his pay. The next week, we had no problems.)
Each child has a bank and a check register to record how much money they have. (We got these for free from our bank. Just ask for them.) Their allowances are written down and added to the total. Every purchase, no matter how small, is written down and subtracted. They always know to the penny how much they have at any given time.
We think it is important to teach children how to manage money and balance a checkbook. We want them to understand that small splurges are okay, but they delay reaching a larger goal. We think it's important that they know to add the delay in getting whatever they're saving for as a part of the cost of an extra Icee or candy bar at the store.
Some are better than others at this, as I expected they would be. My main goal is to take the mystery out of handling money. I want them to make their mistakes now when it is relatively painless instead of when they are on their own for the first time. I had no concept of money when I got my first apartment, and it was a long time before I even began to start figuring it out. I want them to have the gift of financial confidence. That's why we do it the way we do.