I'm with Chad. I've got 5 boys. They know the rules about using my tools. But....they are kids and they make mistakes and get distracted. Labels would help the tools find their way home.
Of course... that's why you buy them their own tools. You get the cheapest stuff you can find as well because they'll most likely lose or trash half of it. When they prove themselves THEN you can let em into the big-boy box.
I guess it depends on what we are talking about though. I'm actually fairly generous about helping people and letting them borrow stuff that they need with the exception of my tools. It's not about the money or if they are lost or damaged either, it's because I frikkin need them. My wrenches and rachets keep the cars going, My pipe fittings and plumbers wrenches take care of the leaks and my wood working tools allow me to do fun projects that silence the voices in my head and keep me from murdering those around me.

So it isn't a matter of "oh he broke that, it'll cost me" it's the whole deal about it being 5 in the afternoon one winter, a pipe breaks and some jackass lost my plumbers wrench. The good hardware store is about to close and I'm 45 min out, so I have to wait, without water, until the next day because somebody needed it to do something unimportant.
Aherm.... getting back on topic, the masking tape has worked for me for years so I stand by it. If you are worried about how it looks, the thinner rolls of tape are just about the width of the stainless steel lip on your typical craftsman toolbox so if you write neatly it'll look nice. I also reccomend Kool-aid plastic containers for your misc bits... they work just like the old mason jar trick except they are cheaper and aren't glass, so you don't have to worry about breaking them. You can write on them with your markers as well.