A common theme I see on alot of Pagan websites is "How to include children in magic and ritual", often posed as a question. My take on that, though, is "How do I not include my kids?"
Magic comes naturally to children, as any parent can attest. They see wonder in the sunrise, a bird's flight, and the stars that shine at night. You can watch them in their imaginary play and see how easily magic is incorporated into all they do. The key, is to help them realize what is true magic, and what is not. For example, a rainstorm just when the garden is getting too dry is magic; most of what Harry Potter does is pretend. Dragon Boy is getting pretty good at distinguishing the difference :)
Talking about magic in our home is as natural as discussing a math assignment. It's so much as part of everything we do, that it doesn't have to wait for specific times to learn about it, or special occasions, or ritual time. When I cook, I stir clockwise, I add ingredients in a clockwise direction, and I always visualize the food tasting good and being nutritious and beneficial for everyone eating. When I clean, whether it's a dish in the sink or the bathtub, it gets scrubbed in a counterclockwise direction to get rid of dirt, and to magically cleanse it of any lingering negative things. And, while I am not a strict adherent of 'An it harm none, do as ye will' (preferring the addition of 'An it cause harm, do as ye must'), I'm quick to whip it out when the kids are intent on causing each other bodily harm.
When it comes to ritual, it never has to be anything too elaborate. Get a simple straw broom from the dollar store, and your child will happily cleanse the circle area for you. My son has done this for the last 2 1/2-3 years, and he doesn't just sweep the floor, he sweeps the air in a circle around the area we plan to work. I never taught him that, he did it automatically. And you know what? It works! Giving each child a special place to sit, a special task to do, also makes it easy for them to feel involved. For example, we divide our items we plan to use, and as I direct the placement, each of my kids gets to put things where they belong. I light all candles, but at the end, they take turns blowing out directional candles, and we all release our Goddess Candle together. Ritual has to be short. We talk about our goals for the ritual/spell/whatever-it-is-we're-doing before-hand, and we each take a minute to say what we'd like to achieve and ask the Goddess and God to aid us. To release the circle, we blow kisses to the sky. This doubles as a way to say thankyou to the deities for their presence.
Another thing with circles and children (and animals), is that the drawn circle doesn't have to be rigid. At least in my opinion, children and animals are innocent enough that crossing the line won't disrupt the energy, or cause a break in the protection, or have any other undesireable consequence. (For that matter, I'm not too strict on cutting doors for exit/admittance, for adults who are already involved in the ritual, either, but that could just be the way my coven and I work.)
With kids, it pays to be creative and flexible. If you're out collecting an ingredient for your next magical working, whether or not your children will be involved, allow them to help you get ready. I recently had the job of collecting pine needles for a working with my coven. I took my kids to the park where they had a blast finding and collecting the needles for me. They didn't need to know they were intended for a wellness incense, all they knew is that I needed their help and it was fun. They were so full of happy energy, that can only positively affect the power of the pine needles in their purpose.
So I guess my point here, is that you don't have to plan out, step-by-step, every ritual or magical discussion with your kids. Just letting it come naturally will result in kids who can experience magic without props. Though, there's nothing wrong with a prop-filled ritual from time to time!