I was raised by Cleopatra, the Queen of Denial. Now I love this woman dearly and she has a myriad of good qualities. But dealing with reality is not one of them. But then reality is not always easy to deal with, especially when children are involved. There's a very fine balance between not putting your emotions on the children or processing your problems through them (especially if you are a single parent), yet still being honest with them that something is going on. What do I mean by that?
Example:
Dad is laid off from his job due to spending cuts at work. Mom and Dad are now quite worried about how they are going to maintain the household. The children see this and ask what's wrong. Some parents bring all their emotions to the children and process them through them. "Mom and Dad are very worried. Daddy lost his job and we don't know how we are going to pay the bills..." etc. Children are too young to absorb such adult emotions. They are not equipped to handle this much stress or problems of this magnitude. Nor do they have the ability to even understand them at younger ages. So it's important to shield them from the emotional turmoil as much as possible. These are adult problems which need to be handled by adults.
However, some parents go too far in the opposite direction. "Nothing's wrong dear. Everything is fine." (Forced fake smile.) The child may say they say Mom and Dad fighting and ask what is wrong. Some parents, in a misguided attempt to protect children from problems or to deny their own (the parent's) emotions may announce, "That didn't happen." This creates an entirely different problem. The child has obviously perceived that something is wrong. They see their parents frowning. They hear them yelling. They sense the stress in the air. Yet that are told that what they saw, heard or felt was wrong. A lifetime of this will produce adults who don't trust their own five senses. As an adult they may have a great deal of difficulty making decisions. They may not trust their perceptions of things and may often ask others, "Did you see that? Did you hear that? What did you make of that? What do you think he meant by that?" They may question their understanding of things. "Did you mean...", "I'm not sure I understood..." or "Did I get this right, are you're saying..." Unsure of themselves, they look to others for external validation. Not trusting their own judgement or perceptions will seriously undermine their sense of self esteem and self confidence.
The alternative? When children ask you if something is going on, first, realize they know something is going on or they wouldn't be asking. They have sensed it. If they are old enough to ask the question, they are old enough to have an answer. But an answer that is appropriate for their age. Acknowledge that their perception is correct, but then establish a good boundary. Explain that it is an adult problem and assure them that the adults, Mom and Dad, are going to figure it out. This keeps adult problems in adult hands, yet does not deny the child's experience.