Because ילדים is a non-specific word and it translates only to "children". If you want to refer to boys you should use בנים.
For girls it's אנחנו הילדות שלהם. But for a mixed group of children it's always הילדים
I think that "We are their children" is not the correct answer, because the definite article was not translated. It would be: We are the children of them.
"We are the children of them" would be a literal translation, but languages are best translated into their own idiom. The sentence is proper Hebrew, so translating into proper English would result in "We are their children", as the exercise says.
Can someone transliterate this? I'm not sure I understand the grammar structure in this sentence