Simple frame loom and upcycled yarns = crafters gift. (can be varied for young and older).

http://www.ehow.com/how_7249888_make-homemade-weaving-loom.html
 (More suited to 12-120 year olds) Just use old frame. Nails.

Here.

Cereal box = Child's loom. Why not use grasses, plarn, material scraps, left over gift ribbons, whatever is clean and available. This kit could then be gifted in a shoe box covered with picture ideas.

Older folk might enjoy this.

Reclaiming and cleaning yarn.

http://www.craftstylish.com/item/9839/how-to-recycle-yarn-from-a-thrift-store-sweater

Above is the tutorial you have been looking for. I have spend hours upon hours researching. 

This is "the one".

< How to make "plarn".