There are myths about sex regarding children that as a willing tantrica, I took guidance from my teachers, and to my surprise, their experience was different than my own.
Myth: You can be openly intimate with your lover(s) in front of your child until they are about 2 to 2 and 1/2 and they won't remember anything.
My child certainly remembered what my lover and I were doing, even when he was only 6 months alive. Either he is a genius and remembers everything, or the assumption children do not remember is just a myth and is different with each child, so play with caution parents!
Most of us who are adults now in their 20s, 30s and 40s grew up with parents who taught us to keep our sexual passions under cover. We were not supported to pleasure ourselves as children, and were taught that this was dirty, naughty, or against their religion. Now, as many parents are coming to realize, this suppressed us and we actually had to retrain ourselves to come out of the dark, and in fact, some adults still feel ashamed or embarrassed to self pleasure even now. When witnessing our children and the innocence that they are, their natural tendency is to touch all areas of their own body. It is how they learn and gives them confidence and acceptance for who they are. As adults now, my suggestion to you, is to allow your children to have naked time and be who they are going to be. And, if it bothers you, give them a time limit and have the experience end at a certain time, or have them go to their toy room. Otherwise, you'll just be training them to be as suppressed as all those who came before them.