As part of the Government's child wellbeing approach, the Ministry of Education is offering $150 per pupil at decile 1-7 state and state-integrated schools over the next four years, if they do not ask parents for school donations.
The aim was to stop schools from charging school donations for class activities, which put financial pressure on parents who could not afford the money.
The scheme requires a law change and is planned to come into effect from the start of the 2020 school year.
The Government hoped the families of nearly half a million children at 1700 schools nationwide - 63% of all pupils - would benefit from the scheme.
Schools have until November 14 to opt in to the scheme, but this week, the ministry said only about a third of eligible primary and secondary schools nationwide had done so.
Otago and Southland schools were following the national trend.
Otago Secondary Principals' Association president Judith Forbes said she was not surprised so few had responded.
It was because schools were in a dilemma.
Some schools offered expensive extracurricular activities and asked parents to pay much more than $150 per pupil to cover the costs.
''I know that for a number of schools, they've looked at it and it's a lose-lose situation if they opt in.
''They will not be able to offer the high quality of education that they currently can if they do opt in, because the funding will be less.
''But also, they recognise that they could alienate some families by not opting in.
''It's a really difficult thing for secondary schools to make a call on.''
A Ministry of Education spokeswoman said the number of schools opting in was expected to increase after the school holidays, when schools had time to consult with their communities.
''Because the scheme is voluntary, we have always anticipated that some schools may choose not to opt in.
''As it is an annual process, the schools that choose not to opt in may choose to do so in a subsequent year,'' she said.
