Everything is not fine: Kids can tell when parents suppress their stress. New research finds that parents suppressing feelings of stress around their kids can actually transmit those feelings to the children. The study found that children had a physical response when parents tried to hide their emotions. Source 2a.
Kids are intuitive, even little babies. They respond to what they see and feel without thinking about it. My view is that we shouldn't lie to children, but we don't have to be blunt, either. Finding a good middle ground when talking to them about frightening things is much better.