Bail out the kids? Think twice

he bailouts. The rule bending. The seemingly easy forgiveness of monster screw-ups.

As parents watch the economic crisis unfold in the United States, they may see some uncomfortable parallels to their family life. Even the language that analysts use in fretting about the effects of propping up toxic businesses will resonate with those rearing children: moral hazard.

In the financial and insurance trades, the moral hazard of a decision is the worry that, say, rescuing an insurance company that has made financially risky decisions removes the incentive for the company to be careful in the future. Instead, companies may see an upside to taking foolish risks.

In the microcosm of the family, bailing out kids who have blown their tuition money or totalled the family car raises similar, if less costly, issues. Should you make like the U.S. government and get your bailout package ready, or should you leave them to clean up their own mess?

When it comes to kids, some experts say, the free-market approach is better.

"The best teacher in life is natural consequences," says former teacher and parenting coach Derek Randel. "We get those from the decisions we make."

If kids never have to face the repercussions of losing money or getting a bad grade, they can't learn what's at stake, says Mr. Randel, based in Chicago and co-author of Parent Smart from the Heart.

Instilling the idea of financial risk can be as simple as setting a limit on cellphone bills. If the kid doesn't pay you for expenses above the limit, you confiscate the phone until the bill is settled.

And teaching independence can't happen, he says, unless you resist the urge to pick up the phone every time Junior fails a test.

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