There's a bunch of crafting recipes laying around the ground (looks like an open book/beige pages). Every recipe takes 4 ingredients (that those recipe will tell you, though keep in mind you'll have to use big brain power and remember them until way later in the game where you can buy a chest that keeps the recipes you already learned). Search for them, there'll be 1 to craft/upgrade the shovel.
Rare talisman is either jade or silver. Or higher. Once you got 1, try talking to the camera around her fence or try ramming said fence with your face. Or keep checking the hints, maybe they'll change.
Game is also ultra-mega linear : whatever you need is always handed to you in whatever new screen you unlock.