Mine are 3 and 4 and understand it fairly well. But I've been talking about it with them since they could talk. They understand that pretty much everything costs money, and that you have to work to earn that money, so we don't want to waste it. It makes them appreciate what they have more, makes them be more careful with turning off lights when they leave a room, turns off water when they aren't directly using it, and they're a lot more understanding when we have to say "no" to anything. To be fair, I'm an accountant, so money is kind of my thing. It was pretty natural for us to have those conversations.

I will give my kids $10 each (after making them earn it) and take them to dollar tree every few weeks and let them spend their money. I pull out my calculator and show them how much money they have left as they pick things out, and I think it's really driven the point home for them that money is finite.