Can folders in Family Shared iCloud be protected?
My understanding is that each AppleID cannot see the other files and the only thing shared is the total capacity of each item that is stored in each siloed storage.

If you are giving the children access to the Mac or iPad where you are storing these files, you’ll need to encrypt them separately (Disk Utility allows encrypted disk images - kind of like a secure USB drive that only mounts when you put in the proper passphrase) or set those devices to lock and not allow the children in unsupervised.

Then you can explicitly share only the files you want with the several AppleID that belong to “the Parents” on a one-off basis.