Both of my children had a lull in interest after mastering the basics. I suspect they were disappointed that once they cracked the code they couldn't magically read like a grown up. It's perfectly normal for a 3.5 year old to be daunted by lots of words and to have neither the interest or the stamina to read. I'd back off, let the knowledge percolate through his brain and whatever's too hard at the moment mature away.
Being smart is not about reading early, it's about being smart. The preschool will have plenty of non-readers, and will hopefully not be about pushing academics, but about doing interesting things and thinking interesting thoughts about them.
Why does your three year old know the seven year old is anything out of the ordinary academically?
http://www.parentingscience.com/praise-and-intelligence.htmlSome phrasings we use with our children instead of telling them they're smart:
Wow, that looks really interesting!
It must have been fun to do that.
How does this bit here work?
Well done! I know you worked hard on that.
Hey, you said you couldn't do that, but you did it!
You did'nt have to try very hard to understand this, John had to work very hard, just like you have to try hard to understand xyz.
This group is for kids who really love math, or this group is for kids who like to read Junie B Jones.
