That's pretty much how we did it with our kids. Paid them for whatever they did on the farm, anything they needed they had to buy with their own money. We made sure the wage was fair, so they had enough for their basics, but they got to decide where and how it was spent.

We have 2 kids, our son(24) is fairly frugal, our daughter(25) is more of a spendthrift, although she seems to be "seeing the light" more lately.