Attend formal night because it will be a time you will always remember. Even after 20 cruises, it is always great to see a family all dressed up on formal night.
On our last cruise, a B2B to Alaska, there was a family two cabins from ours. The family had twins who were about 11 or so, and on formal night they looked great in their blazers and red ties. Do not overspend though because the kids can wear things that they already have, on formal night.
And on a cruise ship the kids find things to do especially if there is a good kids program. Do not overpack as you can carry only so much.
Hope that this helps.