Experts say that not only is the Santa myth harmless, but it might actually be good for kids' cognitive development. Fantastical stories foster a type of imaginative play that sparks creativity, social understanding and even scientific reasoning.
First: Let go of any guilt you have about duping your kids. Santa belongs in the "good lie" pile because parents invoke him for their kids' sake; bad lies are the ones parents use to deflect blame or avoid responsibility -- we can't go to the playground today because it's closed, when really, you're just too lazy to get off the couch. By the time children learn the truth about Santa Claus (which is usually by age 8, said Jacqueline Woolley, a psychologist at the University of Texas at Austin), they typically understand the difference between these types of lies, so they don't resent their folks or suddenly think that across-the-board lying is OK.
What Kris Kringle does do is feed the imagination. Kids picture him managing his elves at the North Pole, soaring through the sky or squeezing through chimneys. Sometimes children participate in the fantasy themselves, adopting the role of Rudolph or Mrs. Claus in games with their friends. These forms of play may cultivate a set of skills known as "theory of mind," which helps kids predict and understand other people's behavior.
For example, a 1997 study by University of Oregon psychologist Marjorie Taylor, author of "Imaginary Companions and the Children Who Create Them," found that, regardless of their intelligence, 4-year-olds who frequently engage in fantasy play are also better able than other kids to distinguish appearances from reality (they know that a pink rabbit held behind a color filter is still pink), understand other people's expectations (they know people will assume that a crayon box contains crayons, even if the box actually contains a small toy) and know that perceptions depend on context (they know people will identify images differently depending on how much of them they see).
Taylor's more recent work suggests that preschool and school-aged kids who lead rich fantasy lives -- for instance those who have imaginary friends -- have a better understanding of emotions, too.
Fantasy play also forces kids to think through hypothetical or counterfactual scenarios, which bolsters their reasoning skills. What will happen if the elves don't finish by Christmas Eve? What would Christmas be like if Santa didn't exist?
It's even possible to teach kids the truth about Santa in a positive way: just give them the tools to figure it out for themselves, Woolley says. If they ask you point blank, answer with questions of your own. What do you think? Are you starting to think he doesn't? Why? If they're inquiring, they're probably ready to learn the truth, and it's time to talk.