I took piano when I was young. I would suggest a digital piano might keep a child's interest more through the tough times (and there will be some, there always is) than a regular one. As well, if it's cheaper, then that's a bonus.
The fancy ones can do quite a bit, course I think I'm thinking of a $5000 one, which is more than you are thinking of for either digital or regular. But the cheaper ones would be good to learn on.
The only thing I would be careful with an electric/digital piano is if it's a full size keyboard or not. I would think you'd want to make sure it's the full 88 keys. Many are not.
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