I don't have kids, and can't remember what my reading ability was at 4 years old, but I thought when I started reading that I started out by identifying individual characters and trying to sound them out piece by piece? I can't imagine that I built my native language using the whole-word system, but at the same time, that may explain all the spelling tests that I used to do.
I have been learning a completely new language (Polish) for a while now, but I started with learning the sounds of the language first (and how to pronounce the written language) which set up the framework for learning words and phrases later on. I couldn't imagine starting off with learning whole-words. That being said, I think once you have the basic framework start up, you naturally move on to whole words, sentences, and eventually become free with expressing ideas.