After teaching elementary school for many years, and raising my own kids, all I can say is kudos to you! I have seen too many kids who don't realize there are consequences for their actions. They need to understand this by about 7 or 8 years because the older they get, the bigger the problems and consequences...school suspension, trouble with police, courts, jail, etc. Start with the small things before the problems are large. At age 7 he is old enough to understand that what he did was wrong. You are teaching him, and doing him a favor in the long run. Most of the kids that I've seen having problems with authority in school are often the ones whose parents "run interference" for the kids and prevent kids from learning the consequences of their actions. It's easier to be "the nice guy" but it doesn't help the kids to become responsible people. BTW, I wouldn't give the money back...seems like you might be feeling a little guilty about keeping it. It's a small price to pay for a large life lesson. (Have him donate the money to church or a charity if you don't want to keep it!)