Families with teenagers who stay in school will have their welfare benefits increased by up to $4200 a year for each child from January 1.
The increase, unveiled in the May 2011 budget, will bring the Family Tax Benefit Part A for eligible teenagers to $6307 a year.
It will apply to youngsters aged between 16 and 19 who stay at school or undertake vocational training.
Prime Minister Julia Gillard said the government wants children staying at school.
"All the evidence tells us that if kids drift away from school early, then that can mean a lifetime of disadvantage," she told reporters at Smithfield in Sydney's west on Sunday.
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"And we are concerned that for some low-income families, the cost of keeping their teenagers at school is just too much for them."
Families stand to gain up to $160 extra a fortnight, replacing an old system that assumed teenagers left school at 16 and got a job.
Ms Gillard said the change meant families would no longer see their benefits reduced by up to 67 per cent as they continued to face the expenses of having a teenager at home.
"That was the Australia of the past, but we all know it's not the Australia of today and it's not going to be the Australia we want tomorrow," she said.
"Currently, families get a rude shock when their child turns 16."
The prime minister visited the house of the Huynh and Tran families, who moved from Vietnam in the 1980s, to announce the enacting of a Labor election promise.
Families Minister Jenny Macklin said evidence showed teenagers from lower-income families were less likely to finish year 12.
"We want that to change," she told reporters.
