I'll try again since it got scrolled down a bit on the General Disc. Forum:
Have your bike shop fit him for a bike that's a little large but manageable, maybe with a shorter stem. That should allow him for at least a couple of years, or more likely, 3-4 years, worth of growth. Make sure it gets good maintenance and is kept clean, and when he grows out of it you'll be able to get a fair price for it to get a new bike for him.
Adding to that: You should be able to get a very nice bike for under $700, maybe consider a nice used bike if one of your local shops deals with used, just make sure it's not way too big for him. Even if you only get three years out of a $700 bike, and sell it for half what you paid, it's still a little over $100 a year for him to ride. The initial cost may be difficult to swallow, but you're buying something that will last and will have resale value.
"It hurts so good..."