This window disappears and you're now taken to the Family screen of iCloud settings. You'll see your name as the Organizer with an Add Family Member link below.
In order for you to add a family member, the person you're adding must have their own Apple ID; they can't use yours. If they haven't created an ID, they can do so within iTunes or on their device they can go to Settings > iCloud and tap Create a New Apple ID. They'll be walked through the process of creating an ID. (No credit card is required.)
If you wish to create an ID for a child under 13, tap the Create an Apple ID For A Child link on the Family screen. This initiates the process of creating an account for the child. During that process you'll be asked to enter the child's birthday, agree to a Parent Privacy Disclosure form, enter the security code for the credit card associated with your Apple ID, enter the child's first and last name, create a name for that account (in the form of email@example.com), create and verify a password for the account, answer three security questions, enable or disable the Ask To Buy feature (which is switched on by default), opt to share that person's location, and agree to two sets of Apple's terms and conditions.
Do all this and the child is added as a family member. You'll receive a notification of this via email and the child's name will appear below yours as a family member. If you wish to restrict any content you share with your child you must do so on their device via restrictions found in Settings > General > Restrictions. Here you can choose to limit apps and media by rating or age.
Adding other family members
To add someone as a family member who already has an Apple ID, tap Add Family Member in the Family screen and in the Add Family Member window that appears enter the email address associated with their Apple ID in the To field and tap Next. In the succeeding window you can add a member by entering their Apple ID's password after you tap the Ask This Person to Enter Password link. Otherwise you can choose to send them an email invitation.
If you select the latter option, that person's address will appear within the Family Members list with a small Invitation sent entry below. The person you've added will receive an email message inviting them to Family Sharing. To join, they tap View Invitation in the message. On their iOS device running iOS 8 this takes them to the iCloud Invitations screen where they can tap Decline or Accept. When they accept they can add a photo to their identity if one doesn't exist and then tap Confirm to agree to be part of the family group.
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