This is one of those beliefs designed to bring a measure of relief, especially to children. Trouble is, many continue to believe it. Here’s what the Bible says:
The living know they will die; but the dead do not know anything, nor have they any longer a reward, for their memory is forgotten. Indeed their love, their hate, and their zeal have already perished, and they will no longer have a share in all that is done under the sun. (Eccl 9:5-6)
In the story of the Rich Man and Lazarus (Luke 16:19), there is no indication that either the man in Hell nor the one in Paradise were aware of ongoing earthly events. The word of God is also clear that after death comes the judgment (Heb 9:27), not some limbo where people stand, watch, or gaze down on their still-living relatives. When a Christian dies, he or she immediately goes to be with Christ (Phil 1:23).
This notion probably came from Luke 15:10, where Jesus said, “there is joy in the presence of the angels of God over one sinner who repents.” But this is not speaking of humans in heaven. The angels are doing the happy dance when folks come to God in repentance.
When Saul had the witch of Endor bring up Saul from the dead (1 Samuel 28), the dead prophet's response was something like, “Why are you interrupting my heavenly reward to inquire about your earthly troubles?” The context does not suggest Samuel's knowledge of Saul's circumstances, except what he had already warned to Saul while still alive. Add to this the words of the woman who raised Samuel's “ghost,” and you have a house of cards supporting the notion of Uncle Joe watching his loved ones from heaven.
You'll also notice that Lazarus was silent concerning his time in the grave. (John 11) The story makes no mention of what he had seen or experienced, if anything.
Paul told the Philippian church, “My desire is to depart and be with Christ, for that is far better.” (Phil. 1:23) Far better than what? Worrying about keeping a bunch of folks focused on Christ. Being in heaven with Jesus was far better, but it would only have been bittersweet if he had to constantly look down on earth and fret over his brethren.
If you want to keep on believing that the dead are watching over the living, go on and keep doing so. The Bible reveals precious little info on what transpires in the afterlife. I can only tell you what the Bible says, and it is on God's Word that we base our faith.