Related: The Santa deception Is Santa real On the care of young rationalists
All of the other takes on this topic start from a point, when a child (usually 5-9 years old) asks "Is Santa real?" Nobody yet asked "how to raise my child Santa-free?" What to say, when a two-year-old, who just noticed that there is this character on TV asks "will he come to me, too?" A toddler may not yet understand the concept of lie, of pretending, of things not physically existing. How to tell her, what will happen, what to expect, how and why other children behave differently?
My three-year-old daughter discovered Santa last spring, which finally forced me to think: how to deal with it? Ignoring the thing worked for three years, but what now? I live in an extremely catholic country (Poland), so I cannot be completely blunt about it.
In the end I decided to call it "the fairy-tale of [Santa] Claus." For me it has a lot of advantages: this is a story that can be told, retold, reinvented and everybody knows it. In addition, since the name includes the phrase "the fairy-tale", it has just as much validity as the tale of the Red Riding Hood or any TV character that she likes.
I tested some of her beliefs about "Miko". I opened the box with books intended for gifts in front of her. When she wanted to read some of them, I explained that she cannot yet read her book, because she'll get it on Christmas Eve. She asked "is it from Miko?" and I replied that in some way it is, but I bought it. She didn't insist on reading it right now. A few days ago she helped me wrap some of the gifts. She commented that action "Miko brought these so we can wrap them and give them as gifts from Miko."
Malcolm told me, that he likes best the strategy, when you say that Santa Claus is a game that everyone plays. People pretend that there's a big guy in a suit who does the thing, and if you ever let down the pretense to your friends, you lose the game. I'm not entirely convinced by this strategy - it may be too complicated for a 2- or 3-year old (since my daughter didn't wrap her mind around the information that I bought the books).
What are other strategies that you use? Or which ones you don't like? Why?
You mean: "Just don't do it by lying to them about not easily verifiable facts" right?
Lying to your kids about certain classes of things is a great game, which, as others have pointed out, adults seem almost hard-wired to play. It's a great way to stimulate a child's inquisitive nature, in a safe and fun way. Adults will often tell their kids tall stories, or make up nonsense explanations for every day phenomenons, or play out fantasies as if they are real (Santa Claus falls in this latter category).
But for this game to work, the things you lie about should be both unimportant and easily verifiable. Lying about something important ("Your mom just died. Haha, I'm joking, she's in the next room") is just dickish, and will probably leave the kid traumatized. But the lie should also be obvious. If the kid neither expects nor suspects the lie, then where is the game? Then you're just lying to your your kid, full stop.
So regarding Santa Claus, the way you lie about him is important. If you tell your kids he's real while making no attempt to hide the fact that he isn't, it'll just be a grand game for your kids. But if you tell them he's real, insist he's real, and go out of your way to keep your kids from discovering the truth, then your game has turned into deception, and your kids probably won't thank you for it later.
And the same kind of lying by elder siblings to younger ones is even more widespread.