We have Sinterklaas here instead of Santa Claus (who we call "de kerstman", with kerst being short for kerstmis, or christmas, it litterally means "the christ(mas)man"). They're based on the same person and the principle is very similar, though Sinterklaas lives in Spain and rides a white horse, and instead of elves he has Zwarte Pieten (who have been somewhat controversial the last few years). When we got old enough to figure out that other people were buying presents and dressing up as Sinterklaas and his helpers, my parents told us that there were hulpsinterklazen (helper Santas) who did some of the work for him, which made sense to us because he was so old. But we just gradually figured out that all the Sinterklazen were hulpsinterklazen. I don't think I had one eureka moment when I figured it all out.
One tradition at Sinterklaas is to make each other "surprises" (pronounced the French way), which are presents wrapped inside a kind of some sort of arts-and-crafts type of creative disguise, often accompanied by a rhyme hinting at the nature of the present and/or the idea behind the surprise. It might look something like this:
In the last few years of elementary school, kids usually draw names (like secret Santa) and make one. Of course, this kind of lifts the veil on Sinterklaas for any kids who still believe in him. We had one girl in our class who did, and she was a little upset at finding out he was not real, but I highly doubt it scarred her for life. And today, with the internet, I think kids will probably find out much earlier than that.
I think this whole idea that "lying" to your kids about something like the existence of our modern, benign form of Sinterklaas being harmful is kind of ridiculous, unless you do really stupid stuff, like trying really actively to mess with their minds by reinforcing the belief as they are on the verge of figuring it out. Even though pretty much every autochthonous person in my country used to participate in this tradition, I've never heard of a single person being emotionally scarred by it, and most people actually remember it fondly as one of their favorite childhood traditions. And, like Steve and the rogues pointed out, I think it can be a very valuable skeptical lesson.
However, the legend used to be a bit more sinister, and one component of the story was that, somewhat similar to the Krampus, if you had been really naughty, instead of bringing you presents and candy, Zwarte Piet would come and abduct you to Spain. That
I can definitely see as being harmful, in the same way that the idea of hell can be traumatizing. Again as was pointed out on the show, using it as a means of instilling fear to keep your kids in line is probably not great parenting.