How do I tell her (2) that her "lips" are not to be played with when she is at daycare?

Her exploration of her is no less innocent than with their belly on or ears . Curosity leads them to there but knowing that it feels good is what brings them there again and again. It may look like masturbation, but in kids this age it isn’t. The feeling may be pleasurable but not ual. You trying to keep her from doing it will only make it more enticing! And you also don't want her to think that the good feelings she's discovered are wicked or forbidden, instead of normal and healthy. At home ignore the behavior. Touching in public places should be discouraged not b/c there's anything wrong with doing it but b/c it's inappropriate in public