This is so hard! When i was approached with that question when my oldest was about the same age I asked her "well what do you think?" You kinda gotta take it from there depending on the response. If she still wants to believe you go with it, but if they really don't then I agree with the responses above. My oldest was ready to hear the truth so I explained the whole Christmas story and told her that we needed to not spoil it for the other 2 kids. My youngest on the other hand held onto it for a LONG time. I think you will know the right thing to do based on the answer you get to the question.