Well, for my part that's a matter of dignity rather than modesty. In America it's undignified to be naked. I get the impression it's really not in Germany. Children don't understand how to protect their own dignity so it's up to the parents/guardians to do it for them. I would never fuss at a child for being naked, or even fuss at the parents. Just like I wouldn't let my child walk around with mustard on his/her face, I wouldn't let them run around naked.