You have two different situations with two different answers:

The tissues - you have to be vigilant - as soon as you see him him chewing a tissue, say "No!" very loudly, make him sit, and take it away from him. Or, don't keep tissues where he can reach them - if you need or like to have them in your pocket all the time, consider putting them in a ziploc bag or something similar, so the bare tissue won't be there to tempt him.

Dealing with him with small children, it sounds like he's just not used to them. I would keep him on a leash the next several times you are near small children, and keep him close to you. He ought to feel more secure then. Make him sit, if he will, and invite the children, one child at a time, to come over and pet him, as gently and nicely as they can. After a while, you can let go of the leash, and see how he does. Do warn the children, though, if they're going to run around, the doggie WILL try to herd them, so they should not do that while he's around. Is he a Sheltie or collie of some sort? If so, you may never be able to break him of the urge to herd small squealing things that are trying to escape - they're just being bad sheep!