First of all, be aware there are some feature differences between the 16GB and 32GB/64GB versions of the 5th generation Touch. The one that pops to my mind is that the 16GB version does not include a rear-facing camera, only a front-facing one, while the 32GB/64GB versions have both. You might want to review the features to make sure there aren't any deal breakers for you.
Otherwise, 16GB is more than I personally will ever need on a phone or tablet, but DD13 can blow through 16GB in no time. She has hundreds of apps, probably close to a thousand pictures, lots of music, and as many movies as she can fit in the remaining space. If your kids are younger and just want a few games and such, smaller is fine. But if they are teens and will be more actively using them, then you might want to go biger.