The ESRB's ratings don't necessarily identify "this is the game's target audience". They are really only meant for content advisories: a rating of "toddlers 3+" simply means that the ESRB doesn't feel there is anything in this game that would be dangerous or inappropriate for children to interact with (violence, drug use, sexual content, that sort of thing). The ESRB is saying that you can let your toddler watch or mess around with AC:NH, without any meaningful risk of potentially exposing them to things that parents might object to (although remember that online interactions are, as always, not included in the rating!).
That said, there are also plenty of 3- and 4-year-olds that can read just fine. Some kids learn to read early, some focus on other areas of intelligence; it's really not something to worry about at all! If your kids are struggling with the text, maybe this just isn't the game for them quite yet. AC:NH is a surprisingly deep and complex game anyway; even if a kid can follow the text, I would be surprised if they could really understand and interact with the underlying systems. But if they're having a good time, who cares?