Well, let's see...
We give the kids binocs and have them take bearings. We let them bring Legos in the cockpit. We let them steer (with supervision) and trim the sails. We play with the
radar and electronics to help them learn it. We talk about right of ways. We do let them watch TV some. We have started getting into fishing from the boat (a really good hobby for kids, btw).
As a few words of warning, we do try and plan our runs such that we hit an anchorage in time to swim and have fun exploring with the dink. I think that is very important as quite candidly, there is no way to keep them completely occupied with things non-electronic related for a really long time. Best thing may be fishing and the binocs so far. They really enjoy running around with them. We bought the kids their own cheap set this year from Walmart (about $20-30 a piece, I think). A good investment since you probably do not want your $1000 Fuji's or Steiners going in the drink!!
Here are my kiddos...
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