No, don't give the envelope back to him. He may very well feel uncomfortable, ashamed and embarrassed giving them the money at this time. It appears that he's trying to avoid having to look at the disappointment and hurt on their faces because he's gone, etc. I would go ahead and give the children their envelopes and cash at Christmas. He just can't face them at this time, especially w/Christmas right around the corner...too many good memories he can't face right now.
As for the clothing, some of them don't think about what they are wearing and don't give a second thought about "matching suits", etc. He may very well just like the jacket. Don't try to over analyze his every word and move. It'll drive you crazy.
