In China, during the Qin Dynasty, the elderly would thread coins with a red string. The money was referred to as "money warding off evil spirits" (Chinese: 壓歲錢; pinyin: yāsuì qián) and was believed to protect the person of younger generation from sickness and death.[citation needed] The yasui qian was replaced by red envelopes when printing presses became more common and is now found written using the homophone for suì that means "old age" instead of "evil spirits" thus, "money warding off old age" (Chinese: 壓歲錢; pinyin: yāsuì qián). Red envelopes continue to be referred to by such names today.
There are several legends as to how the red envelope came to be and became prevalent in China. One story depicts a village where a demon was terrorizing the people at night, in most cases children were the victims. The belief was that the demon was touching the children's heads while they were asleep and this would cause the children to become deathly ill or may even result in death. As the theory continued to linger within the village, a worried couple decided to protect their new born child by praying to their god for protection. In return, their god sent eight fairies to protect the new born child from the demon. In order to trick the demon, the fairies disguised themselves as eight coins and were placed under the child's pillow at night to protect the child. At night the demon supposedly approached to touch the child on the head when the eight coins began to shine so bright that it prohibited the demon to see. Frightened from what had just happened, the demon ran away in terror. After hearing this story, the villagers began spreading the word and gave out red envelopes filled with coins to be placed under their pillow at night. At first the red envelopes were only given to children during the Spring Festival, but as time progress they were given to anyone.
By giving these red envelopes it would bring good luck and prosperity to the one receiving it. It would also prevent any evil spirits from contacting them throughout the year until the next Spring Festival. (Wikipedia)
My family has an old tradition where my grandparents would put some money in the red envelopes and hang them on a cherry blossom tree. Each envelope would contain a different amount of money ranging from $1 to $20. The envelopes would be shuffled and everyone would have to pick a random envelope from the tree. The youngest of the family would be the first to pick their envelope and the oldest would be the last. When everyone has chosen their envelope, we would open them up at the same time. Whoever got the greatest amount of money would be the first to get food.
Another similar tradition to this is when I used to go to the Vietnamese church in El Monte and the preacher would have many red envelopes to give away. Kids of any age can line up to say "Chuc mung nam moi!", which is "Happy New Year!" in Vietnamese, to be able to get a red envelope. The money inside is usually around $1 to $10.