Bettelheim said, in no uncertain terms, that this trend was robbing children of the very thing they need. He saw the tales as a sort of safe laboratory in which children could confront the problems of life. Since they remain on the oral level, and the children aren’t force fed ready-made imagery as they would be by films or television. The children have the advantage of imagining the elements and occurrences of the tales in the manner and intensity their psyches are ready to handle. It's not like watching a movie in which the dragon is far scarier than the child is ready to deal with. And, of course, the story is told in a the safe environment of the home, in the presence of a trusted, protecting adult.
Bettelheim says the child gets the chance to "rehearse" challenging and threatening situations internally, and develop the strength to handle them when the situations arise later in their lives. The modern kind of fluffy children's literature, he says, doesn't have the genuine content for them to chew on, and adult literature (not to mention adult media) is too strong and too life-like to be of use to them.
Bettelheim also says you should never be so ham-handed as to explain a story to a child, since its impact on the child is through imagery and emotion, not intellect. He also says that one doesn't need to choose stories to read to children out of any intentional therapeutic design. One simply reads the stories at random, and the child itself knows when it has been affected by a story. If something is stirred inside the child (i.e. if something is an issue they need to deal with), it will want to hear it again. Sometimes it can request to hear the same story many times over while it is grappling with the problem. And then, suddenly, one day it doesn't want to hear it anymore, which means it’s gotten what it need and it's time to move on.
I've observed some of this in my own children, to whom I've read Grimm’s, and other traditional fairy tales every night (with the occasional other book thrown in here and there) for many years. Indeed, there are stories they want to hear several times, and you can see from the expressions on their faces that they are working through something as they listen. And sometimes the impact can be intense. I've witnessed fairy tale events make a child burst into tears. There's obviously something being worked out in that child's psyche! And this is where the anti-fairy tale contingent would say the child is being traumatized by the story. But, in my "unprofessional" opinion, I can see the benefit of this controlled, limited exposure to the problems and challenges of life.
And it hasn't only been the children who are affected by the tales I read. On more than one occasion I have felt myself mysteriously moved by one of the tales I was reading to the children, although I didn't know, on the rational level, why. Two that come to mind are "Jorinda and Joringel" and "Hans the Hedgehog." I have promised myself I will make them the subject of deep meditations some day. I know they will yield deep levels of self knowledge for me. And due to my knowledge of Western esoteric traditions, I can't help noticing that some stories are like alchemical formulas ("The Poor Miller's Boy and the Cat"), some are like initiation rituals, ("The Queen Bee"), and some seem to be metaphysical teachings in parable ("The Old Man Made Young Again").