All of this thread is good advice, so I'll add to it.
Overcontrol, as you've probably seen, is the most common problem with new pilots. You need to be thinking about the mistakes they can make before they get a chance to make them.

I've found it helpful, especially for really new pilots, to have them watch a maneuver, then watch my fingers as I do it again. That way they see how much (how little!) stick movement it takes to really move the airplane in the air. Many people learn better visually than verbally, so that helps those as well.

A little trick to gauge nervousness is to ask how long they think they have been flying. If they overestimate, they are nervous so don't push them more. If they are accurate or underestimate they you have some freedom to challenge them more.

Another thing that you didn't mention is teaching them how to do pre-flight inspections and flight trimming. You haven't produced a competent pilot until they know how to take care of their equipment.

And I would suggest against the spad if it doesn't fly well or land well. Balsa planes are pretty durable unless you nose them in or cartwheel them. You'll produce better pilots and have fewer problems to recover from with a better flying plane. Take them in their training to the point where they are doing good figure 8's and approaches, and then tell them it's time to get their plane in the air if you're worried about damage from bad landings.