The questions are really:
Should kids be allowed to spar, with control, with rules, without head-contact and under supervision? Yes.
Should kids be allowed to kickbox under the above conditions? Yes.
Should kids be allowed to learn submission grappling under the above conditions? Yes.
The video showed that the referee was enforcing the no head-shots rule--during the part we saw at least. So it appears that the bout was supervised and the fighters were not going full contact.
So it looked OK to me. Now, would my wife want our kids doing that...probably not...but she doesn't even like seeing them do headstands...