I think $25 is a perfectly reasonable amount of souvenir money for one child who is under age 10. DS is 7, he gets $15 per trip right now if his behaviour warrants allowing shopping. That is enough to buy one or two small items. We limit his purchases deliberately; we don't want DS to get into the habit of believing that he should get to purchase lots of "stuff" on every trip he takes. We just returned from a trip, and DS bought 2 access badges from rides he went on for the first time (he had to work up the courage), plus a couple of pressed pennies. He's quite happy with those.
If you expect a child to bring money for incidental snack purchases or things like quarters for video games, that is something else again; I would give my child extra money for that if I knew you would allow him to indulge. (We don't allow those things, so if it were my kid, he wouldn't know what to do with himself, LOL.)
I have to tell you, if I gave my child a fixed souvenir budget and he came home with far more than the budget allowed, I would be somewhat displeased. We very strictly emphasize that the reward of travel is the experience itself, not the goodies that are purchased along the way, and we really discourage souvenir-buying. I would expect him to politely refuse the offer of extra souvenirs. Of course, had it been me, I would have had the courtesy to tell you why I had limited the money.
For the sake of simplifying matters, I think the easiest cost split when hosting someone else's child is for the host to cover the flexible costs such as food, and for the parents to cover the fixed costs, such as the park tickets. That way the amount is clear up front and there are no surprises/misconceptions for the parents to deal with. Of course, if you can afford it, the nicest option is to extend the invitation without expecting the child's parents to cover any costs at all. That way, anything they contribute is a nice surprise.