While I agree with the bulk of this message, I want to point out one inaccuracy. Children masturbate on their own without having had any exposure to it by others. In fact, boys will often fondle themselves in-utero, before birth. It is a natural part of exploring the body. Most kids fondle their genitals fairly regularly by age 5 or 6. Children need to be taught to do it appropriately (if in line with your values), or taught your values if it is not acceptable under your value system.
That is not to say that this instance of masturbation did not originate externally. It may or may not have, I don't know. But I merely wanted to point out that children masturbating is normal.
Here is a good link about what is normal masturbation in children and what is not, as well as tips for dealing with it: