I think we did a small allowance when ds was younger: something like $1/week. When he was in 3rd grade, he wanted to buy a skateboard, so we bumped it up to $5 a week with the understanding that he was to save to buy the skateboard, toys, electronics, and other things he wanted. (Turned out the $30 skateboard he bought wasn't so great, so we may have subsidized the next, better one LOL.)
Over time we added to it. Now he is 12 and gets $10/week. It's enough that he can save up to buy "extras" in a reasonable amount of time. So over the years he has bought fancy lego sets, other toys, skateboards and skateboard stuff (although we pay for safety equipment such as helmets), iPod Touch, video games (he's learned that used games save money), cool baseball caps, etc. He also pitches in if he wants the expensive version of something, like an expensive brand sneakers (we'll pay the amount the cheaper brand would have cost, he pays the rest), or the expensive hockey stick he wanted.
I helped him open a savings account, so he uses that to save up and for "bonus money" such as birthday gifts.
Sometimes he will take us out for a treat, like ice cream, if dh and I say no because we've used the food budget already. : )
Last year, dh was out of work and we stripped down the budget. We weren't broke (I earn the majority of our income) but we cut back. DS's allowance went to $5/week, but we put the other $5 into a "family fun" envelope so that we could save up to play mini golf, or go karts, or some other fun activity once a month or so.
As he gets older, we will add both money and responsibility to ds's allowance. Not sure what it will be for yet: at this point, ds never buys school lunch, and isn't at all fussy about his wardrobe. If he starts asking for pricier clothes, he will become responsible for that budget.
We don't tie chores to allowance. You do chores because you are part of the family and things need to get done. You get an allowance to learn to manage money. So far, it seems to be working for ds--he is a good saver and makes decent spending choices,