People need something to believe in. Life is hard to handle when you think it means nothing. Being disillusioned hurts. Little children cry for days when they are told that Santa Claus isn't real. They need to think that their actions are worth something, and that morals matter. That Santa knows whether you've been naughty or nice and will reward their actions with presents allows them to live happily. When they lose this belief, they adopt a form of belief that is much harder to break. Instead of presents for niceness, they believe that by hiding their naughtiness well enough they can avoid the ultimate form of the lump of coal. They stop caring that Santa's replacement can see them while they're sleeping (and see them while they're awake) because they're used to the Big Brother equivalent.