We had a great discussion about this in 2008:
http://forums.equipped.org/ubbthreads.php?ubb=showflat&Number=154885&page=1

(And now I'm going to quote my own post, which is a little weird but saves time:)

"A first knife is indeed magical to a kid. But that doesn't mean they're ready for unsupervised carry. I think its primary purpose should be learning respect and responsibility under adult supervision. I borrowed and repeated the 'tools not toys' speech to my nephew until he repeated it back to me every time his knife came out.

FWIW, my nephew's first knife was one I modified from a broken butcher knife. I rounded the entire thing with a grinder. Then I added a cutting notch close to the handle, about 1" wide and inset about 1/2". You could fall on this and likely not hurt yourself. Yet it cut bark, grass, and rope, and made kindling quite effectively. I added a sheath made with olive drab canvas and black duct tape, and he loved it. "