My seven year old is the youngest of three and she exaggerates or lies so frequently it's beginning to concern me. It seems she's so anxious to be seen as knowing something or having something to contribute to the conversation. I don't want to scold her or embarrass her. How do I deal with her?
Lies of exaggeration or imagination are very common at this age. I can see how a youngest child might easily feel less knowing than her older siblings, so would make things up in order to hold her own. There are two things you need to do : (1) teach her why lying is not a good idea; and (2) help her meet the needs that are presently being met by the lies.
Children do not naturally know that there is anything wrong with lying. Why do we think it's wrong, anyway? Basically, because when a person sometimes lies, you don't know at any given time whether or not they're telling the truth, so you can't trust them. The story of "The Boy Who Cried Wolf" is a good story to help a young child get the idea. (For those who haven't heard it, the boy gets bored and lonely while he's looking after the sheep, so every so often he cries "Wolf" so that people will come and pay attention to him. After a while they stop coming, and then the wolf really comes.) Tell your little girl this story, or borrow it from the library. Then ask her how she'd feel if you lied. For example, if you said she could have a treat, then didn't give it to her, again and again. Let her figure out that she'd learn not to believe you.
The other problem is the reason why she lies. It's hard to be always younger and smaller and less skilled than the rest of the family. Talk to the older children about it. It is frustrating for older children to talk and play with younger children, because they don't understand why younger kids just don't "get" things. They need to be taught to treat their younger siblings with respect, even though they are less mature. They can make some space for her where she can feel accepted. For example, play a game like Yahtzee which depends on luck rather than skill. Or have each person share one thing that happened to them, while everyone else is not allowed to interrupt or criticize. Or even play a game of making up ridiculous imaginary things, where perhaps she can participate as an equal, making it clear than none of what is said is supposed to be true! The older ones also need times to do things without having to deal with a younger child, so you may need to arrange some other activity for your 7 year old during these times.
The other kind of lying, lying to avoid consequences, is a different kind of problem. This kind of lying occurs because the discipline is too harsh for minor misbehaviors such as not doing homework. In one family, natural consequences are used. If homework isn't finished, it's up to the child to choose between getting a bad mark, staying up late, or getting up early to finish the homework. This child has no reason to lie, and he will probably do his homework, because it's his homework, not his parents' responsibility. In another family, the child is grounded from seeing his friends for a weekend if his homework isn't done. Seeing his friends is very important to him, so he'll lie about his homework, And he'll think it's up to his parents to see that he gets his homework done. By taking responsibility for something that is up to the child, and by imposing harsh consequences when natural consequences were already available, the parents have set the stage for the child to lie. For this child, too, the parents need to (1) teach the child why lying isn't a good idea (see above) and (2) help meet the needs which were being met by lying. This child's need is to be treated with respect and kindness, as someone who can make his own decisions and does not need to be punished severely for minor infractions.