My 9-year-old is very financially driven. We don't pay an allowance. We also don't pay her for grades but we pay for any work/chores she does. We started out paying her .25 cents every time she set the table, took trash cans down to the main trash, etc. That was at about 5 or 6. We would get everything out for her and all she had to do was literally set the table. We moved that up to .50 cents a couple of years ago. For the past year and a half, we also pay her the equivalent of $6/hour for any work she does around the house -- raking leaves, helping me hand drywall, painting a room, hanging shelving, etc. I've told her that there will always be money for her if she is willing to work for it because there is ALWAYS something on the list to do.
On the Bank of Mom & Dad interest thing, that has taken off in a way we didn't expect. We started off paying 1% interest per month to keep the math easy (she has to compute the interest). My daughter puts about 90% of the money she gets into the bank and really doesn't take it out unless there is something she really wants, and even then it is just a few dollars. She has also taken to selling on eBay/Craigslist (with my help to the extent necessary for an adult to be involved) gifts she gets after she is done using them -- old electronics, a bounce house she got when she was 4, a dollhouse, other toys). Anyway, she has grown that money over 3 years to just over $1,000. Yeah, she loves the monthly $10 payout! We could lower the interest payment but I don't mind incentivizing the savings, even at an extremely subsidized rate.
At her request, we recently got her a Visa debit card (tied to a banking account in her name -- us as custodians) because she has been so responsible. To date, she has used it with great care and I haven't seen any downsides to our arrangement. And if she falters, we rather that lesson be learned now than when she is older...but I don't think she'll have any problem.
I don't think financial literacy is going to be a problem for our daughter. Now we can just focus on the ten thousand other things that make being a kid today so ridiculously difficult!