How should you behave?

You answered correctly. In this situation, you should slow down to walking pace and remain ready to brake. When there are children or pedestrians near the roadway, especially in residential areas, you must always be prepared to stop suddenly if they step onto the street. Continuing at the same speed would be dangerous, as children may act unpredictably. This is a standard rule in German traffic to ensure pedestrian safety. Always reduce your speed and stay alert whenever people, particularly children, are close to the road.