Well realistically, my wife and I have been very honest from day one about santa claus and the tooth fairy, etc.
In fact, we explicitly include our 3 year old daughter in playing santa for our 1 year old.
And the three year old, despite my wife and my insistence that Santa is not actually real, fully believes in it. I tell her almost every day that Santa is just pretend and she looks at me and says 'no he's not'.
Pretend and real don't really have any distinction in the minds of most children.
In fact, we explicitly include our 3 year old daughter in playing santa for our 1 year old.
And the three year old, despite my wife and my insistence that Santa is not actually real, fully believes in it. I tell her almost every day that Santa is just pretend and she looks at me and says 'no he's not'.
Pretend and real don't really have any distinction in the minds of most children.