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The 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.

"We're so quick to bail them out when they get into any kind of trouble at school. The lesson learned is that the school now has less authority than my mom, who will be there for me."

But how far to take this tough-love approach? "What I told my kids is, 'I don't do jail visits,' " Mr. Randel says.

Other experts suggested a light interventionist approach.

If it's a first or second offence, come up with a common-sense deal, says Toronto-area parenting expert Sharon McKay, co-author of Good to Go: A Practical Guide to Adulthood. "For me it would come down to, 'You have to get a job. I'll front you the money. No job, no money.' "

But an exasperated parent need not have a plan at the ready. "Throw it back in their court and say, 'I can't bail you out. Give me some alternatives where I can support you.' "

The term for this in child development and criminology circles is restorative justice. "It's meant to imbue some sense of responsibility for the offender," says Tony Diniz, executive director of the Child Development Institute in Toronto.

Parents can start setting their children up for good self-control and decision-making as young as 4, he says. "Kids that are out of hand when they're 14 didn't start then."

When parents visit Mr. Randel, it's almost always the parent, not the child, who needs a lesson in moral hazard, he says.

"If we can just get parents to look at their behaviour and the messages they're sending, then there is hope."

At least until Junior takes a job on Wall Street.