I've posted this before, but that's how we did it. We decided from the very start to answer that it was a fun game because adults love children if our children ever asked.

Kids get much more out of pretending than adults. To a young kid the lines between reality and pretend are pretty blurred anyway. They'll still have just as much fun with it. Our kids still LOVED it. Their level of enjoyment would be no different if we did it the other way.
They still made Christmas lists, they still left cookies for Santa, they even stayed up late trying to catch Santa, etc. Some of our kids when very young still believed Santa was real and argued with older siblings about it despite our being upfront with them that yes it's just a fun tradition. We didn't feel the need to squash their imagination, but we were truthful.

We did caution our children to be careful with how they discussed with others reminding them that other families did it differently and we can respect that each family has their own traditions.