With a now five year old and an almost four year old we were due to start giving out allowance. We have been slow to start because we weren't sure the best way to do this. In talking to one of my friends this past week she told me they do pirate chest and coins for incentives. I love this. Especially since I have a little boy who LOVES him some pirates.
So we wrote out our expectations for the kids. They have a list of chores that they already are expected to do each day. Then we told our oldest that he gets 5 $1 coins each week. If he fails to complete an expectation he gets 1 reminder. Then he has to pay me 1 $1 coin to help him or for a second reminder. At the end of the week he gets payed the amount he has left. We feel he is old enough to understand the concept of giving, saving, and spending. One thing we felt important is that if we give him money he needs responsibility. So he is in charge of buying his own snacks when we go to Target or McDonald's or some where like that.
Also each boy has the ability to earn "loot coins". I have a box of prizes and they can buy a sticker for 1 coin, a prize for 4 coins, or a dollar store trip (with 1 dollar) for 10 coins. Bubba is starting out with 5 loot coins at the beginning of the week. He is not quite mature enough to understand money management, but he does understand rewards.