I found out when I was three. It was around x-mas and the T.V was running all those old "Feed the Children" commercials. As the story goes, I asked my mom why Santa didn't bring those kids FOOD, if he could bring us kids all kinds of TOYS, I guess I was being a persistant little brat, because my mom began to sweat and stutter, until she just belted out"Because there is no Santa! It's me and your dad! OK?" So, though I don't have advice on how to tell this to a middle schooler, however your friend tells her son will probably be better than this. Also, when I was 5, my father, a Steelworker, was laid off for X-Mas. One day near the holiday, I accompanied him to the unemployment office, where a very mean lady with a large mole, that worked there, looked down from her window at the counter and said "Well, it looks like it's not gonna be a good Christmas for you little girl"! The point is, neither event left traumatized at all, I still enjoyed leaving out cookies for 'Santa' and I still loved Christmas morning. It will be fine!