When I decided my son WAS old enough for pocket money (i.e. could add well and was much better at making decisions and then living with the choice - about age 7 for him), I wanted to read up a little on it first to get my approach straight.
I can thoroughly recommend the following book:
The Pocket Money Plan by Julie Hedges. I'm sure Ms Hedges doesn't want me to reveal her system, so I'll just say that this is a book that will be helpful to us for a number of years as the children grow. I found it full of sensible, realistic, age-differentiated advice that we have applied for several months now.
After getting used to the new system, we have now got it largely right. The children have successfully saved for larger toys they wanted, whilst also having money to put into charity boxes and spending money for sweets and small toys on a weekly basis. The main problems lie with us - making sure we remember to give it to them on Saturdays and making sure we have enough change for them both. And remembering to make time for shopping occasionally.
One point I would just make is that I also thought I'd better do something for both children, despite the difference in their ages and capacities, otherwise I would struggle with the question of fairness. Basically, I didn't want to have to deal with little sister moaning every week about not getting pocket money. In retrospect, I should have been stronger. Little sister (age 5) can't add very well and can't make decisions easily, so the question of money is actually a little stressful for her. I could have treated pocket money as a thing older children get and left it at that. Learn from my mistakes, people!