Manage expectations
It's obviously okay to say "no" to a toy your kids want if it is not something you want to buy or have in your house for whatever reason. But how do we keep from running the gauntlet whenever we're in a store? How do we help our kids to be satisfied with what they have, not just to avoid clutter but as a good general life attitude?
First, we stick to commercial-free TV or mute the commercials, especially around the holidays. Kids can't want something if they don't know it exists (and aren't bombarded with dishonest and manipulative advertising that they might not be able to understand yet). We love to tell a story from when my son was about 2 1/2. He had a new baby sister and so had been (ahem) watching a bit more TV than usual, to give Mama a bit of sanity. My own sister came to visit and was cleaning up a mess made by one of the kids when my dear boy recommended, "You should use Oxi-Clean. It gets out tough stains." Kids absorb advertising messages, whether or not they even understand what they're talking about!
When we go to a store that has toys, we try to explain ahead of time whether this will be a trip to get something for the child, to get something for someone else, or just to look (these trips are rare). I like to have some stores where I never buy toys, like the supermarket, Target, and Ross. We might look, we might get crayons or other art supplies, but not toys. Now they rarely ask for toys in those stores.
Finally, we find that having fewer toys, mixing things up by rotating toys (more on that next), playing outside, and playing with our kids can help them appreciate and enjoy what they already have.
Purge and rotate
Whenever I am starting to feel overwhelmed by the volume or quality of toys in my home, I purge! Get rid of (or fix) those broken toys that are hanging around, and donate or sell ones your kids have outgrown or that don't promote the kind of play you want in your home (or if you just hate them, that's okay too).
If you still have more toys out in the living area or your kids' rooms than you want, start a toy rotation: box up some of the toys for storage, especially if you have several different versions of a similar kind of toy, such as puzzles or play sets. Rotate toys out and back on a biweekly or monthly basis so toys will stay fresh and new in your kids' minds. Kids will also be able to play better with more space and fewer choices.
If you still have more toys out in the living area or your kids' rooms than you want, start a toy rotation: box up some of the toys for storage, especially if you have several different versions of a similar kind of toy, such as puzzles or play sets. Rotate toys out and back on a biweekly or monthly basis so toys will stay fresh and new in your kids' minds. Kids will also be able to play better with more space and fewer choices.
Keep grandparents in the loop
I don't know about your parents, but ours LOVE to buy toys for our kids. Love it. It can get a little crazy around Christmas and the birthdays, which in our case is one month-long celebration. While we are grateful for their generosity, we have found that we need to help them to channel their enthusiasm in directions that serve our vision and values for our family.
Of course, if relatives give our children toys we don't want or have room for, we can always give them away, but I would rather they spend their gift money on things we can get behind. Websites like the SoKind Gift Registry sponsored by Center for a New American Dream can include secondhand items, experiences, donations to charity, and other alternative gifts. I recommend starting a registry well before the holidays or birthdays so givers have time to order things if necessary.
Other alternatives to toys could include magazine subscriptions, museum or gift memberships, gift certificates for other family activities, experiences with the grandparents (get Grandma to take the kids to a jumpy castle place for a couple of hours - a gift for you too!), art supplies, or books (we rarely buy new picture books for the kids, but grandparents are happy to do so).
If you need to, you can set a gift limit for birthdays and holidays (say, three gifts including one toy only). Try to explain your vision for your home, either in terms of avoiding clutter or encouraging imagination in your kids. I know from experience that limits without an accompanying explanation can lead to confusion, especially when you are choosing to do things differently than your own parents did.
Play!
This is probably the hardest suggestion for me to follow, considering all of the other things I need or want to do when we're at home. Without exception, getting involved and playing with my kids is the number-one way to keep toy clutter at bay. I am their favorite toy! When I play with my kids, either by building something with them out of K'NEX, doing a science experiment or craft, reading aloud, going outside with them, or making a block tower, a number of magical things happen.
My kids are less likely to ask to watch TV or get new toys because they aren't "bored." I gain more of a sense of what they like to do and can suggest other activities when they tire of one game or another. They get the sense that their toys are interesting because Mama finds them interesting. They get new ideas for how to use the toys they have. As any parent knows, yelling "Go play with your toys!" while we are doing something of our own and ignoring the kid never works, no matter how many toys she has.
How do you avoid toy clutter in your home?