In the past it has not been possible to use PayPal as a payment for Family Sharing.
Also have a look at this discussion:
Paypal code for verification not working - Apple Community
As Family Organizer you will have to set up a different payment method for Family Sharing:
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When Purchase Sharing is turned on, everyone's purchases bill to the family organizer's payment method.* If there's an issue with the payment method, the family organizer can update their payment method or add a new one.
If you're the family organizer and you don't want to share a payment method with your family, turn off purchase sharing. When purchase sharing is turned off, you can continue to share subscriptions like Apple TV+ and Apple Arcade. When Purchase Sharing is turned off, everyone must use their own payment method.
* Learn how purchases are billed if a family member has Apple Account balance.
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copied from: How to share purchases with your family - Apple Support
Add a payment method to your Apple ID - Apple Support