Blow up the balloon 1/4 way.
You may tie a knot or tape the tip of the balloon to hold the air in.
Have the child cut the yarn into long strips.
In a bowl, help the child mix the glue and water together until you get a viscid mixture.
Ask the child to dip the strips of yarn in the glue mixture and then use it to wrap around the balloon, starting from bottom to top (the child might need help with the bottom part where the yarn should be rolled tightly).
Encourage the child to use a pincer grasp (tip grasp) to take the yarn pieces out of the mixture.
Continue until the balloon is 3/4 covered in yarn. Allow to dry, then pop the balloon and take it out.
To make the bowl colorful, use different colors of yarn.