Setting of Family Sharing does not work for iTunes Gift Card payment.

As far as I know it only works with payment by credit card - http://www.apple.com/ios/whats-new/family-sharing/ :

Up to six people in your family can share purchases from iTunes, iBooks, and the App Store without sharing accounts. Pay for family purchases with the same credit card and approve kids’ spending right from a parent’s device.

If you want to leave feedback for Apple (these are user-to-user forums) about using an account's balance then you can do so via this page : http://www.apple.com/feedback/itunesapp.html

It appears that this is not well supported in iTunes on Mac/PC yet, I was able to have my kid perform his purchase in iOS 8 which worked flawlessly. The amount of the purchase was deducted from his gift card this way.

I can't do that - I have credit, it shows up in my phone, but insists on the family credit card. How did your son get the purchase to go to his gift card?

Had family sharing set up but my son's account would not let him buy apps from an iTunes gift card credit. It always tried to charge my debit card. He opted out of sharing and now he can't download any free app he previously shared with me or buy one of them either. Neither of these problems makes logical sense. We are both running IOS 8.1.2 on iPads. Has anything been done to address either of these two issues?

This literally JUST worked for me. When it asked me to confirm the family share organizers security code, I just hit 'done' without entering anything and it billed my iTunes credit. YAY!