My fourth daughter had a very lively imagination and she had imaginary friends. In fact she said at one point that she was born from someone else and lived in a different place. When it became problematic, I simply told her that if she didn't live with us, then it was time for her to go home. She said, "but, Mom!" That seemed to tame the problem a bit. Children, especially those under the age of 12, have very fine lines between pretend and reality. This is not the same as "lying" and should not be discouraged, but rather teach the child that there are boundaries. When with close friends, relatives, or family members, pretend games are normal and harmless as long as they do not include hurting others or include sexual intimacy. When in public, however, children need to know that pretending is not appropriate and can even be dangerous.