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Great question! I think it’s tough to experience the local culture of Iceland as a tourist. With that said, here are a few places we found and interacted with locals.
In and around Reyjavik:
– Thermal pools. We stayed in Álftanes, a “suburb” of Reykjavik. The Sunday morning crowd at the pool was just about all locals. Try some of the less touristy neighborhood pools, like in Seltjarnarnes.
– Nauthólsvík Geothermal Beach. Another thermal pool, mostly. It’s outside of the main tourist area (and a little hard to find!), and so off the beaten path.
– Slakki. Your kids are probably too old for this, at least the older ones. But lots of people who live in Reykjavik come out here to get away from the city.
– Helgafell. This is a fun hike up a mountain, and another place locals come to enjoy nature.
– There are some interesting summer camps you can sign the kids up for, though that would eat up most of a week. http://www.fristund.is/
Outside of Reykjavik, the Westfjords might be your best bet. Most tourists don’t make it here. You could drive up, and the younger kids could try a day of sheep farming camp in Holmavik.
Then try the playground in Súðavík (bottom on of the same post above) on your way to Ísafjörður. It’s a great town that will still have some tourists in it, but it still feels like Iceland. Explore the shops and restaurants in town, and then a firm like http://www.westtours.is/ could help you plan some adventure. To really get off the beaten path, have them take you to Hornstrandir Nature Reserve.
Regardless of where you go, try to stay in an AirBNB house in a city. You’ll usually interact with the owner, and feel more like a native.
Let me know if that helps, or you need other ideas!
