It depends on how prevalent the Santa Claus figure is in your family/culture. In Singapore, where Santa Claus is more of a token holiday figure and kindda inaccessible to our culture (since there are rarely any chimneys here haha), most of the time, I notice that kids understand and view him like how they would view a cartoon character. My friends in Singapore never had any problems explaining Santa to their kids. But if Santa is an important part of your childhood, family and culture, like it is here in Sweden, then it's okay to indulge your kids in this mythos. My fiance has played the role of Santa during Christmas for his nephews and nieces and it always makes them so happy. As they grow older, they realise that it is actually someone they know in the costume and gradually, the fantasy lifts away naturally. Kids tend to figure these things out after a while, so don't worry too much about it :)
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