Fairies and Mermaids and Cryptids, Oh My
Can Catholics believe in fairies, mermaids, and other "cryptids"?
Because there is no evidence that they exist, there is no point in believing in fairies and mermaids. Regarding “cryptids,” such as the so-called Loch Ness Monster, there is some evidence that something strange may be lurking in a lake in Scotland, but there is no need to become preoccupied with it.
On the other hand, parents might tell their young children tales of the tooth fairy and/or the Easter bunny, given the benevolence of those mythical creatures. Such fantasies are highly unlikely to have a harmful effect.