Your family and guests won't confuse their white towels if you color-code them with hanging loops. Suspended from pegs, the towels will dry quickly and stay neat.
Tools and Materials
Colorfast, cotton-twill ribbon (1-inch wide) in several colors, each cut into 8-inch strips
White towels
Needle and thread
Towel Tags How-To
1. Fold a ribbon strip in half so the cut ends align, making a loop. Fold cut ends under 3/8 inch.
2. At midpoint of one long side of a towel, sew ribbon strip to towel twice, with folded-under edges facing inward: Stitch once about a 1/4 inch in from towel's edge, and again, about 1/8 inch in from that.
3. Repeat on additional towels, varying ribbon colors.
Stress-Free Pegs
Shaker pegs are functional and stylish, but they can be a hassle to install. To make the job easier, look for ones that screw in (americanwoodcrafterssupply.com); the deep threads anchor pegs securely with minimal effort.

I like this idea, my brother is picky about using only one towel that is "his" and used only by him, I had gotten towels that were all the same so it took extra effort to keep "his" towel always his and buying new ones where each of us have our own color was not going to happen with our current budget for linens. So now thanks to some dollar store ribbon I can do that with out stressing. Saved me lots of cash
We also use "color-coded" towels and washcloths. And cups in the bathroom and at meals. On trips, I take color-coded hanging clips so that we don't mix up washcloths and towels (makes it easier to reuse to save water, too!)
We have towel colors that match the room wall colors--keeps it easy and beautiful!
We solve the problem by everyone having their own color of towel set... Guests usually get stripes while the family has solids!
Why buy these when you can make them for free. :-)
Ikea sells these in washcloths in Ikea Junior... exactly.