After an uproar from parents over their kids' over-the-top in-app purchase bills, Apple added some safeguards with an iOS update back in 2011. And Apple has just agreed to settle a lawsuit concerning kids' in-app purchases; the company will reimburse parents for all unauthorized payments.
Now, it's not hard to prevent your kids from racking up big bills with in-app purchases on an iPhone, iPod Touch, or iPad. Here are some pointers:
Turn it off. Use your phone's restrictions to simply turn off the ability to make in-app purchases. Go to Settings, General, Restrictions. Under "Allow," choose "Off" for in-app purchases. Important: Use a restrictions passcode (not the same as the phone's passcode lock) that your kid doesn't know and can't guess. If your child knows the restrictions passcode, he or she can disable the restrictions (kids would still need a password to make an initial app purchase; see below).
Turn off the grace period. Unless you're running a really old version of iOS (and if you are, it's time for an update), you have the option to either require a password immediately for any in-app purchase, or to allow a 15-minute "grace period" during which, after an initial in-app purchase, you can make purchases without re-entering the password for the iTunes account. Require the password immediately. (This setting is also found under restrictions.)
Keep your password a secret. The grace period won't do you much good if your kid knows your iTunes password.
Go with a gift card. Let's say you want to allow your responsible kid to make purchases, but not go wild. Opt to fund his or her iTunes account with an iTunes gift card instead of a credit card. In iTunes, just select "none" for credit card and instead enter the gift card information. Letting kids know how much they have available to spend should encourage them to budget wisely. And once they hit their limit, they're done. You can review their purchases within iTunes.
You can also set up a separate iTunes account for your kid using a gift card. Kids will then be able to make purchases if they're logged in to their own account (until it's drained, that is).