FEARS that our children are becoming too soft and cloistered has prompted a major investigation.

The impact of over-protective parenting will be the focus of the VicHealth study, amid psychologists' concerns of a "marshmallow generation".

The three-year study will examine the impact of parental fear on reducing children's independence and physical activity levels.

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It comes as psychologist Michael Carr-Gregg said parents were raising a generation of children too afraid to fail.

VicHealth acting chief executive John Fitzgerald said irrational fears of stranger danger and a strong desire to protect children from injury were barriers to them walking to school or playing outdoors.

The study, to start in December, would examine these issues, and interventions would be developed to minimise parental fears and its negative effects on children, Prof Fitzgerald said.

"We want to be able to help parents work through it, so it doesn't impact on kids exercising," he said.

The Australian Health Survey 2010 found 42 per cent of children aged nine to 16 failed to meet activity guidelines of an hour or more on most days, he said.

Dr Carr-Gregg said some schools were awarding participation ribbons rather than first, second and third prizes to minimise competition.

It comes as Education Department report cards do not give failing grades, but note that work "needs attention" or is "below the standard expected".

Psychologists said some children were seeing them:

IN tears because they had been beaten by parents or siblings in backyard family sport or board games.

REPORTING minor friendship tiffs to school authorities as bullying.

THROWING tantrums because their teams lost.

VIEWING rough-and-tumble sporting games as violent attacks.

INCONSOLABLE because they had a bad mark for school work.

Dr Carr-Gregg said a lack of competition meant children did not learn to deal with disappointment.

"Where is the incentive to achieve and get better? When you take away the ability to win and lose, you are taking away the capacity to develop resilience and the ability to overcome adversity," he said.

"We are raising a 'marshmallow generation,' but we are doing them no favours because life does not work like that."

Originally published as Fearful parents spawn 'marshmallow' kids