I went with the total honesty approach. It doesn't seem to have affected them negatively in my case. I mean, I still enjoy Santa Claus to some degree. I don't think thinking it's real is a critical component of the experience.
My kids enjoy the elf on the shelf sort of thing, and they were always fully aware the elf is not actually getting up to shenanigans at night. Nevertheless it's fun for the entire family, because it stretches us parents to be creative a little bit every night as well. Most recently the elf was starring as Batman in a three-night, three-act structure in which he menanced Joker, then the tables were turned with the Joker having hijacked the Batmobile and running over Bat-Elf, then there was a climactic showdown involving the Lego train tracks the next night. Nobody needed to think these adventures are actually real to enjoy them.
I come in in between; the stories are important for other reasons, but it is in no way mandatory to tell them they're real. Maybe in the 19th century it was less of a big deal, reality was more real in a lot of ways. But in a world of deep fakes, CGI, incredibly organized special interest groups comparable to the size of entire powerful medieval cities a few centuries ago, etc. etc. I need all the trust I can get if I'm going to train them to survive in the unbelievably hostile environment they're trying to grow up in now. Recently I was showing my kids how they're being targeted by video game gambling: https://www.youtube.com/watch?v=eMmNy11Mn7g and I was musing on the fact my parents had basically zero need to be concerned about this. I couldn't have screwed my life up that way if I had set out with the explicit goal of doing so. I need all the trust from my kids I can marshal in this century.
There were some fantastic anecdotes as adults looking back on the deceptions by their parents in this discussion: https://news.ycombinator.com/item?id=33863990 (If you unscrew your belly button, your bottom will fall off). Just in case you didn't see it.
My kids enjoy the elf on the shelf sort of thing, and they were always fully aware the elf is not actually getting up to shenanigans at night. Nevertheless it's fun for the entire family, because it stretches us parents to be creative a little bit every night as well. Most recently the elf was starring as Batman in a three-night, three-act structure in which he menanced Joker, then the tables were turned with the Joker having hijacked the Batmobile and running over Bat-Elf, then there was a climactic showdown involving the Lego train tracks the next night. Nobody needed to think these adventures are actually real to enjoy them.
I come in in between; the stories are important for other reasons, but it is in no way mandatory to tell them they're real. Maybe in the 19th century it was less of a big deal, reality was more real in a lot of ways. But in a world of deep fakes, CGI, incredibly organized special interest groups comparable to the size of entire powerful medieval cities a few centuries ago, etc. etc. I need all the trust I can get if I'm going to train them to survive in the unbelievably hostile environment they're trying to grow up in now. Recently I was showing my kids how they're being targeted by video game gambling: https://www.youtube.com/watch?v=eMmNy11Mn7g and I was musing on the fact my parents had basically zero need to be concerned about this. I couldn't have screwed my life up that way if I had set out with the explicit goal of doing so. I need all the trust from my kids I can marshal in this century.