Simple lessons about money should start early in your child's life and become more complex as your child matures. Here are a few ideas about how you might talk to kids of different ages about a Rainy Day fund.
Very young child: You might say that "extra money" works like an umbrella that keeps you dry in a storm. You've got it when you need it. Talk about how having change in your pocket enables you to buy a juice when you're thirsty.
Slightly older child: You might talk about a "just-in-case" fund used to get out of minor trouble. Good thing I had some money in my pocket because I couldn't find my movie ticket, and I had to buy another one.
Older child: Kids around 10 should begin to understand that you save for unexpected events. You get a flat tire that's too damaged to repair. You need money on hand to buy a new replacement.
A teenager: Teens should know that such a fund gives you the security to live without borrowing when the need for money arises. The refrigerator cannot be repaired and you must buy a new one. Because you have the money saved, you don't need to pay interest on a loan in addition to paying for the cost of the fridge.
College student: These young adults should understand that money gives you a feeling of security in a world of more complex situations where anything can happen, including losing your job.
Source: The Mint, Pointers for Parents - Topics for Talk, www.themint.org, visited January 19, 2012.