My daughter is now graduating grade 12, so I feel qualified to comment...
1) We read the millionaire next door and Millionaire mind, and when we moved, (she was in grade 4) we chose a nice blue collar type of neighborhood, with a few nicer homes here and there. Think of an area with nurses, police officers, school principals, and many dual income parents for more money, or families that take in foster kids and homestay borders.
This means that we actually have as much spend power as most around us (yet still chose to spend a bit less than many). AND that there are many, many kids who can't afford the extras -- like the skiing days we did 2-3 times per year.... Neighborhood was absolutely the biggest factor to keeping costs lower.
2) I then set a budget like other suggested. Our budget is $10 per week each for allowance and about $100 per month for other activities. This was enough for free activities (church related, cadets), and a summer camp, and one other part-year activity as teens, or one activity per month for elementary.
3) Once the kids were 14, we found opportunities form them to make money. Baby sitting, lawn mowing, paper service, lacrosse referee and now for my 17 year old, I put her in a trade apprentice training last summer, so she can earn more at part time jobs in future.
4) AP classes are cheap -- $120 each for the exam, or $99 US... That offsets nearly $1000 in tuition in first year college, if they score a 4 or 5, so is a steal in terms of value.
5) By setting the budget before the teen years and having them choose, and not giving money for entertainment money (eating out and cellphone money), we set up the discussion and expectation early. When they have to pay for their eating out / nails, and other optional items (including uniforms if over budget), then they suddenly decide to be involved much less. There are a ton of free activities to join, after all. Many free student clubs here through the school, like student union, debate club, and some school sports have minimal uniform fees
Both kids were able to go on one overseas trip with the school or club (fundraisers and work to pay for it)
6) Note, many dance and sports activities lead to money making opportunities as a referee or a dance instructor.!
7) Prom. I gotta say that given the above, it may surprise you that I have bought my daughter a $300 dress and $75 fitting fee, shoes, bag, etc. I may pay for her hair to be done. I bought the graduation photo package and paid for all AP exams. She will have to buy her prom tickets, yearbook, arrange with dad or a friend to drive, and had to decide which grad events she would attend (she decided not to pay for the grad boat cruise early in the year, for example). I truly think that a terrific dress up grad memory experience is worth it, given the hard work and great grades this past year. FYI -- my mom does, too. She remembers not going to hers because her family did not have the money for the ticket and a dress, and she would have really liked to go...
And yes, Prom can cost $500...and still be "average" even in a blue collar neighborhood.
My two cents is to stop paying for the continual little extras, set a limit on the extra circicular, tied to your budget, not what she would be missing out on..., but make sure the AP classes and prom happen.