I sincerely hope that the Elf on a Shelf fad is dead by the time my daughter's classmates are talking about this nonsense. I'll have to come up with a creative response when she asks why we don't have an elf if it's still a thing in a few years.

Be sure to tell her now, that Jesus is a fantasy just like Santa was....

I looked up "Elf on a Shelf." The story says the elf watches children and tells Santa if they misbehave.

Reminds me of "Santa Claus is Comin' to Town."

You better watch out, you better not cry
Better not pout, I'm telling you why
Santa Claus is comin' to town
He's making a list and checking it twice
Gonna find out who's naughty and nice
Santa Claus is comin' to town.

He sees you when you're sleepin'
He knows when you're awake
He knows if you've been bad or good
So be good for goodness sake!

Where did your daughter get the idea that an Elf on a Shelf doll is a living, breathing person? This baffles me. Any observant person can tell it's not breathing.

My daughter Claire never thought dolls and toys were real.

I agree with it not feeling right lying to kids in the first place. Ideally I hope Im able to practice radical honesty with my kids if I ever have them (big if). Im nowhere close to having kids and I know that'll be easier said than done, but still deciding whether Ill tell them about Santa or not. I wouldnt go to elf on the shelf surveillance state proportions ever. If I do tell them about santa I'll start by explaining the mythologies he came from: Odin and the philanthropist St Nick, and say "a lot of people believe..." To give them an air of mystery and excitement around the holidays but still talk openly about the source of myths and encourage them to come to their own conclusions.

One great idea Ive heard when it's time to have the santa talk is to explain that santa is an idea, an ethic, that it is better to give without taking credit. So now that youre a big boy/girl and figured it out, that means that you're old enough to become santa for other people as well! That way it hopefully feels a little more like a right of passage they can be proud of and do good with, and not purely a loss of magic. It's ok to believe in magic semantically, as long as you realize it purely comes from what we do for each other.

Children live in a different world than we do, they believe in unicorns and dragons. It's called imagination and it's critical to the development of the mind, it's an exercise of thinking outside the here and now that will aid in decision making in the future.
I'd let them believe in Santa or the Elf (I also share a disdain for that thing as well) until they were old enough to rationalize that they don't exist. IMO if it brought tears to your daughters eyes then you told her too soon.

There's a post going around FB transcribing the "Santa" talk that a man (?) has with his son, in which (paraphrased) Santa is revealed to be the spirit of giving, and spreading joy and wonder--and "knowing the secret" of Santa is presented as a kind of rite of passage into some maturity, an induction into a society of "those who know", and an investment with the responsibility of carrying that culture forward.

It's fully empowering and achingly beautiful.