While I think it is okay to masturbate I do think it is best done at a later age - I know this from experience - not personally but from friends who started at 4 and got so use to it they found it difficult to be intimate with a woman , one of my friends even though he had a girlfriend he would occasionally lie to her he was busy so he can spend time privately doing what he does best ...
Too much freedom to do whatever our little ones desire is not always good - remember if we give in to every craving however good does not have a better end...
Remember that book 'LORD OF THE FLIES' well that is a classic example of what happens when children are left to their own devices..
You can tell your child while masturbating is perfectly normal and accepted it is something you do when you are older...so it is better to try and wait - I believe when children are bored they think of all sorts of things...