Let me offer you a slightly less pessimistic view point because it is easy to be a rich laowai (foreigner) drinking wine in your apartment and sheltering yourself from the rest of the world while bitching it out from the comforts of hermetically sealed apartment.
The nongmin in the park are just people playing board games and some are shabbily dressed and some decently dressed, but they’re no different than the people playing board games in the parks of any other major city. There is something very charming about going to the parks and hanging out reading while people run their kids around, play board games, and practice taichi or musical instruments.
There are good pollution days and there are bad pollution days, just like there are rainy and non-rainy days, and the pollution can even change mid day. For example, today is a good pollution day and even though it is a little cold, my windows are open and my cat is having a great time running around and watching out the window while I suck in some beautiful air. I ride my bike as my main means of transportation and bought this athletic mask to wear when I ride (it has changeable filters that are cheap) Also, just buy papers masks that fold flat and always keep one in the pocket of your jacket or purse for when the air is bad. Lastly, get this app for air quality index on your smart phone, you can even have it update with a number on the icon so you can just glance at it whenever you turn your phone on.
Buying Stuff Online:
Getting comfortable with Taobao is pretty important, it is kind of like a Chinese eBay and it has a lot of crap on it, but when you find the correct stuff on it, it’s usually cheaper than Amazon.cn or buying it in a normal store, plus it’s delivered for free (sometimes even same day). Have a Chinese colleague walk you through Taobao at some point.
The tap water isn’t terrible in a tier one city like Shanghai, theoretically they remove hard metals from it, but my girlfriend (who is native) and I still boil our water. There is a lot of old pipe between you and the water treatment plants so no one is going to fault you for getting a water treatment system if you can afford it.
Home Air Filters:
Definitely get an air purifier for your home. You can get really high end Blueair purifiers Taobao or go with low tech options like this.
This last one is literally a HEPA filter strapped to a fan; I have the most basic one of these and it is very compact, I can move it from room to room, and it makes a big difference, but takes more time to clear the air than a nicer model. The who guy who makes these is based in Beijing where the pollution is much worse and he has a lot of interesting videos he put together testing his filters against high models.
There isn’t a lot of skiing in Shanghai and bike riding is something for the little braver, but though I do see young kids on bikes on the sidewalk. With you kids I would suggest getting them enrolled in a martial arts or gymnastics class after school a few times a week where they exert their energy and you should make it a normal part of their routine. For instance: Monday, Wednesday, & Saturday go do their exercise and if they’re taking a formal class with a teacher, you can just bring work or book and chillout. Make it a fun thing and don’t be afraid to take the metro, lots of interesting people watching! I study capoeira here (a traditional Brazilian martial art), I have been a martial arts and sports person all my life and finally settled on doing capoeira a little while ago and am very happy with that decision at it provides a large sense of community, gives you instant friends who are interested in your well being, and keeps you healthy. You can literally show up to a class and just ask for help at the end and people would go out of their way for you there in a heartbeat. Also, kids who do capoeira are always really amazing; it teaches them team work, independence, leadership, and all that good stuff.
Long Story Short:
Everything is going to kill you, but if you don’t go out and enjoy life a little bit, you will end up sitting at home and becoming paranoid of the world outside by listening to people who complain the loudest on the internet (while drinking wine from the comfort of the hermetically sealed apartments). This is one of the most interesting cities in the world and your children have an amazing opportunity to spend part of their lives in, go live a little.