I'm as guilty as anyone - kid is whining, I hand over the cell phone to entertain them. I don't have kids; I have friends with kids. In an aside, these are my favourite kind of kids, I get to play with them, teach them bad habits, spoil them rotten and hand them back when they start getting irritating. Its also my favourite kind of dog and I treat them remarkably similarly, though kids are more dangerous - they have thumbs.
However, before I handed my phone over I told my nephew that I only have a demo of a couple of the games and to not order the full versions please, I can't afford them. He was eight. Now, some would think I was crazy for trusting an eight year old, in hindsight, I think I may have been crazy for trusting an eight year old; BUT, he didn't buy anything, he happily played for thirty or so minutes while his Mom and I gossiped and then handed the phone back. Part, I think, of why I could trust him was his parents had instilled from an early age that things aren't free and you ALWAYS ask permission before buying something.
When I was about that age I wanted an Archie digest but I was pretty sure my Mum wouldn't have bought it for me if I asked. (In hindsight, she probably would have since I'd actually been helpful on the particular shopping trip and not a hindrance.) So, I snuck it into the trolley. I typically had the job of unloading, Mum had the job of packing, so getting it to the cashier was easy, getting to it before my Mum would try to bag it was trickier, but I thought I'd managed it. However, when we were leaving my Mum said she'd seen what I'd done, she wasn't impressed, and that it was stealing. I looked up at her wide-eyed and said it wasn't stealing, it had been paid for. She said I didn't steal from the store, I'd stolen from *her* since I'd used her money without permission. I was very shocked by this and apologized and she said just don't let it happen again. And it didn't for about 9 years. (Another story for another time since I don't come out looking at all well in it!)
And I think, that lesson along with some basic precautions are what you need before you hand over your cell phone or your tablet for the kid to play with. I'm not an extremist, I don't believe kids shouldn't be allowed video games. If it entertains them in the car or while you're shopping, why not? If they want to chat, and interact with you, they will. If they don't, they won't. I think you just need to be open to either possibility. And let's face it, some days you may not want to be social with ANYONE and that'll include your kids.
First off, turning off the internet isn't difficult. You should know how to do this anyway. Turn it off before you hand it over and problem solved, sort of. Your more advanced kids will, of course, know how to turn the internet back on. Some of the free-to-play games won't work without internet because if they're not showing ads, they're not making money. This is a tough choice, do you take the risk and keep the kid happy or do you find another game? As a non-parent its easy for me to say 'Teach them that you can't always afford to get what you want' .. but I'm sure a parent would see both sides of the question clearer than I.
Secondly, always have a password for your purchasing. Change it every once in a while. I'm not a parent but my observation is kids are ninjas and you never know what lurks in the shadows watching what you're doing. I had a friend as a teen who had a collection of phone cards numbers from watching people punch in the numbers at pay phones. And teens are not as observant as eight year olds!
Thirdly, turn on your email notification. Almost all apps have a return time guarantee. If X was purchased and you didn't mean to or want to or whatever, you can almost always get a refund. This often has the side effect of your game getting reset back to scratch, but its also not going to cost you the $500 bill in gems. If you get your phone back and you have half a dozen purchase notifications, you better get on returning/requesting refunds while you threaten your child's continued existence. (Jokingly, of course. Or at least, I always assume my mother was joking..)
Fourthly, and probably the most importantly, don't store your credit card info with the Play store or iTunes. If the person using your phone can't just type in a password to approve a purchase, it makes it a bit hard to purchase. I, personally, have this set up this way purely so I can't do impulse purchases! If I REALLY want that game of Bubble Blast (or whatever) I have to go down to Future Shop, buy a game card, and then use THAT. Let me tell you, it's amazing how many games I don't actually want that badly. (If Guitar Hero is ever available on Android, however, I may be in trouble.)
I don't think this situation is the fault of the OS operators or the app programmers. Its a perfectly viable business model. It's not a trap. You are perfectly able to say "No, I'm not giving you money." and enjoy the free version. Its perfectly within your power to protect your wallet before you hand your phone or tablet over to your kids. I don't think the government needs to protect us, I don't think we need to stick programmers on stakes and threaten to light them on fire if they don't change, and I don't think its anyone's fault. Its a mixed bag, and with some precautions, its perfectly okay to let your kid play Smurf Village or whatever.
Although, I admit any game that REQUIRES me to purchase something to finish one of the in-game tasks gets deleted pretty quick. I'll stick to the free games that just means you can speed up the game, or add some pretty shinies, or whatever. I do consider the require to pay to get past a certain point ones bait and switchy.. and of course, you don't know which ones those are until you get to that point.