I always try to make them feel confident. Use comments such as: "your doing great" or "you seem like a natural".

I always stay right at the flight line with my student. One time I was at the field and a fella was helping a new pilot. The instructor was over BS'n with everyone else and the student flew alone. You can't teach them anything that way. Even if I am not watching their every move with the plane, I stay right there and talk to them.