Why is it better for an adult to lie to a child than for a child to lie to other children? I mean, they're both wrong, but I'm not sure that I agree it's better to violate a child's belief that their parents are a trustworthy source than to encourage a bad habit (lying) in the child. After all, by that argument, sometimes it is better to lie. Not that a child young enough to seriously entertain the possibility of Santa is going to understand the distinction, but I think that the best option is the third one: tell them the truth ("fairy tale" works pretty well; a parent already needs to explain the concept of fiction) and don't tell them to lie (you can tell them that other people might be upset if you tell them the truth, but that feels like a sort of weighty idea to drop on a young child).