Here's a third choice to consider.  Explain to your child that while Santa does indeed make and deliver the toys on Christmas, each family must pay for them.  Resources are scarce, and those elves don't work for free!

Emphasize that the bill is sent sometime after Christmas, and, if it is not paid, the household will be removed from Santa's list for next year.  You may want to take some time to talk with your child about family income.  (See Wise Pockets Treehouse: Income.)

This option allows you to maintain the magic of Santa without promoting the idea at an impressionable age that Santa truly is the proverbial free lunch!