Get something decent for a guitar, and he will stick with it. You can also get better gear for a given price by buying used gear, check places like Music-Go-Round and eBay for decent instruments. Another advantage of buying used gear is that it will hold it's value well and you'll be able to get your money back should your son lose interest.
Also another thing that I suggest you get is an amp modeler like a Line6 POD, as it's a decent piece of gear that digitally emulates the sounds of a whole series of very expensive tube amps and speaker cabinet configurations. The best part about the POD is that even though it has Line out (to run through a PA system, or Stereo system) it has no internal amplifier and relies instead on headphones, so you, (and your neighbors) won't have to deal with loud noise. --Again, buy used and you'll be able to recoup the cash invested should your son lose interest later on.
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When There's No There to get to, I'm so There!