Here is a complete step by step guide of how you can set up Microsoft 365 Family Safety for your child.
PART 1: Setting up Microsoft 365 Family
Step 1: Create a microsoft account for you as a parent.
Go to https://www.microsoft.com >> Sign in >> „New to Microsoft? Create an account„
Step 2 (optional): Get a Microsoft 365 Family subscription
The basic Microsoft Family Safety version is supposed to be free. In order to use all Microsoft Family Safety features you will need to purchase a Microsoft 365 family subscription. I already had a subscription so I don’t have experience with the free version, but according to PC Mag and other sources the basic functions should work well in the free version.
To buy a subscription, log in to your microsoft account and follow the instructions there. It is 99 € per year and you can share the licence with up to 5 members of your family (so with you 6 in total). In this way all of you can use typical Office apps like Word, PowerPoint etc. too.
Step 3: Create a Microsoft account for your child
To create an account for your child, log in to your Microsoft account, scroll down to the card „Family“ >> View your family

Once you get to that next page, on the top right click „Add a family member“.
When it asks „What role should they have“ you choose „Member“ and then click „Next“.
There you click „Create an account“ (small option at the very bottom – well done Microsoft 🙈)

PART 2: Preparing your child’s computer
Step 1: Change your child’s Windows account from a local (offline) account to a Microsoft account
Log into the Windows account of your child with the credentials he or she got from school.

Click the Microsoft icon on the bottom bar >> Settings >> Accounts >> Other Users

There, click on your child’s name. It will show you the option to Sign in with a Microsoft account. Follow the sign-in instructions and enter your child’s Microsoft credentials (email and password).
This is important, as your child’s computer account needs to be connected to its Microsoft account, so the device can be associated with your child.
Step 2: Create an additional (admin) account for you as a parent
In the same menu (Settings >> Accounts >> Other Users) you click „Add account“
Enter the credentials (email and password) you used for creating your own Microsoft account.
Once created, change the account type to Administrator (click on the account name >> Change account type >> choose „Administrator“)


Step 3: Change your child’s account to „Standard user“
Now log into the new admin (parent) account. Microsoft might ask you to set up a Microsoft PIN. Feel free to do so, it will make your login easier and faster.
After you logged into your parent account on your child’s computer, you click again the Windows icon >> Settings >> Accounts >> Other Users
Click on your child’s account name >> Change account type >> choose „Standard user“
This is important as otherwise, if your child remained an admin, they could change any settings you make and install anything they want without your permission.
Step 4: Connect the device with your child’s account
To connect the laptop with your child’s account you actually just need to log into your child’s Windows computer account again (sign out of your parent’s account and then choose your child’s account to log in).
Now, once you log into your Microsoft 365 account on your own computer again, the laptop of your child should show up in the „Family Safety“ area of your Microsoft 365 account. In my experience this takes quite a long time! I first thought I’d done something wrong or missed a step, but actually all was fine, after a while the connection finally showed up.
Once this is done, you can define the safety settings in the „Family Safety“ area.
PART 3: Define the safety settings
Go to your Microsoft 365 account. Scroll down to the „Family“ card >> View your family
Click on the card with your child’s name.
Here you can see your child’s activity on the computer, set overall time limits and limits for certain apps.


Alternative:
If you do not want to purchase a Microsoft 365 Family subscription or are not happy with the options it provides, you might want to check out Norton Family.