We started allowances for our kids (now 6 and 7) about two years ago, and it's been working GREAT! No more begging me to buy them things when we are at the store. I just remind them that they can save up for whatever it is they are admiring. And they are learning how to make choices with their money, the value of saving and giving, how to count money, and getting the idea of change and taxes... It's been fantastic. I'll tell you how we do it at our house.
We do not connect the money with chores or general behavior (though if we had any serious behavior issues, I suppose refusing allowance could become a consequence)--those are things that are expected of them because they are part of the family. We told our kids from the get go that the allowance they were going to get was part of teaching them how to manage their money, which will be a very important skill when they grow up. Just like we teach them how to read and work with numbers, they need to know how to take care of their money well.
The amount they get each week sounds very small, but you don't really want them to be able to buy a new toy each week and to not care about saving. The idea is for them to get just enough that they can buy something small and still have incentive to save for something larger. They also can get extra money from specific big jobs that come up around the house, from the tooth fairy or gift, and if they take care of sorting and bagging the cans and bottles, they get to keep the recycling money. So there are ways to get extra money for something special.
We give half of their age each week, with specifications of how to budget it. My daughter just turned 6 and got a "raise" to $3 a week. My son who's 7 gets $3.50. They put 10% right away into their giving bank (a clear plastic jar), then 50% into their savings bank. The last 40% gets to go into their wallet which stays in my purse for when we're at the store. So my daughter puts 30 cents to giving(our church), $1.50 to save, and $1.20 to her wallet every week.
$1.20 doesn't sound like much, but it's enough to buy something from the dollar aisle, or she could save it and have more the next week. She is FINALLY learning that she she doesn't have to burn through her money each week.
For the savings bank, I let them spend it on a special toy after it has accumulated up to $10. When my son turns 8 soon, I think we'll start dividing that into short term and long term savings.
Well, I didn't mean to write so much, but hope you have found something useful to help you. We also find crown.org is a good resource for us. Best wishes!