Hello.
Such a question torments many parents, because all small children believe in the tooth fairy, Santa Claus and other characters invented. After all, everyone wants to believe in fairy tales and wonders - this is so nice! Over time, children grow up and forget about them, stop believing in magic and miracles - they just become adults. And because we ourselves sometimes support this illusion in order not to deprive the child of happiness. What to do in such situations?
Firstly, you can continue to be friends with this gnome and use it to convey to the child very necessary and useful information, to learn about his affairs, because maybe he will tell the gnome more than you. Psychologists are sometimes advised to do this with the help of their favorite toys and characters, and in return let him get his little gifts - coins, stickers, toys.
Secondly, if you decided to finish the game with the gnome, think up a fairy tale in which the Gnome dwarf comes to the children to help and learns to read, and when they learn to read, he leaves the last gift with a letter and says goodbye, for he has many children in the world who need to be taught to read.
And if the child suddenly noticed how you put the gifts under the pillow yourself, say that you really liked to play a game with him, to be a gnome and to give gifts.
In any case, if your baby likes this game, go on, and over time, when he matures, he will forget about it. All the best!