Have you ever considered that Christmas gifts are the perfect opportunity to teach your kids about the grace of God? They are. Do you know the difference between Santa and Jesus (besides the fact that one is real the other is not)? Santa gives presents based on merit. He gives to kids who have been good. Jesus gives to people who are not good, who are unlovable, who deserve hell. Jesus knows all that and loves people anyway. We can't earn His love and we can't do anything to make Him not love us.
Here is the application: give your kids gifts at Christmas based on your love for them...nothing else. Teach them that you desire to give them gifts solely because you love them. Tell them that you love them no matter what they do, good or bad. Then tell them that by sending Jesus, that's exactly how God loved us.