Note: I'm in Canada :)
I got my daughter a used 64GB iPhone 5 from Kijiji for $100. Grandfather paid the extra $60 to unlock it. It was her birthday present. Any unlocked phone would work for this. She just happens to like iPhones and since we got a really good deal on it, we felt it was fine. Yes, it is much more phone than she "needs", but I was fine giving her a "toy" she likes for her birthday and frankly, its been a great value considering she uses it constantly. She had an old iPhone 4 we got used on Kijiji for $25 before that. I just couldn't stomach paying $60 to unlock such an old phone.
Then she used her own money and paid $35 for a year's worth of service from 7Eleven Speakout. She's had it since July and its worked well. The $35 plan only covers a very limited amount of texts/calls (avg of 7 texts/month I think?) so she only uses it for emergencies. 95% of the time, she uses Freetone, a free VOIP app which gives her a local Cdn phone number. She can call/text over wifi at her school and at home. I like that she has the Speakout plan now so she can contact me when she is out and about without wifi.
We are now talking about figuring out a similar system for my DS14. Will have to see if I can convince him to pay for a phone plan though (I'd prefer not to pay for it since his sister is paying for her own)... Right now, he can't be bothered to even use his sister's old iPhone 4 on wifi. He communicates with his friends on Skype and doesn't care about texting yet. I do have an ancient unlocked Blackberry that I'm thinking of making him carry around so we don't have to keep calling his friend's cellphone to track him down. I feel so guilty for freeloading! And yet - that friend has unlimited calling/texting on his phone and I do help his mom keep track of the kid.
An alternative for US kids who are willing to use a free VOIP app 95% of the time (like my daughter) is the Truphone plan. Calls/texts/data are 9cents each so more expensive, but there is NO expiry and NO minimum reloads. For very, very occasional use (2-3 text/calls a month would be $3+/year), it is the absolute cheapest plan (on a total cost/year) I could find in the US (I use it for traveling in the US).