I can understand the idea of wanting to show the benefit of compound interest. Don't know what the right way to teach money skills.
What we do, is that kids have their allowance automatically put in their savings accounts. They get this allowance for basic, assumed they will do things like picking up after themselves, keeping room clean, very small chores. They also can get additional money for extra chores. Daughter at 12 also babysits and is paid in cash.
The deal is if they want to put any money in their college savings account, I will match that amount. As it is in a fund, they can visibly see that the money grow (the amount is larger than the amount deposited).
If they want to buy extra stuff for themselves that are non essentials (if in a store, etc) they can spend their money. Sometimes they will go ahead and buy it, and they can take it out of their piggy bank or I will take out of their savings. Most of the time it is interesting something that they REALLY wanted, once they are told they can buy with own money, suddenly become disinterested.
So I think they are learning some money lessons, though I don't know if this is the optimal way of doing it.
One thing we need to work on, is introducing more expected chores as part of their allowance. We have been easy on them, but they need to contribute more to the household in this fashion, in a non-negotiable way.