Sorry: a bit late to the party.
Very glad you're working with kids and using model railroading as an opportunity to spend quality time together.
It's a fun way to build together, as well as learn/teach modeling techniques as well as history, electronics, soldering, patience, etc.
http://model-railroad-hobbyist.com/magazine/mrh-2012-05-may/kids-and-model-rring2'x4' is a nice size, but think twice before assuming that 7-year-olds are more interested in watching train run over & under than operations.
I've found that by 6 years old most kids tire of "roundy round" very quickly (unless they have dinosaurs to deliver), are very excited about placing certain cars in certain places (i.e. "ops").
So while the 2'x4' over & under can be a fun building experience, the fun ends soon after completion.
And seeing the entire trackage looks "Toy Train".
Having a scenic divider such as a backdrop:
Or scenic divider:
http://www.yardgoatlayoutdesign.com/21.htmlor a physical feature like a mountain:
http://www.yardgoatlayoutdesign.com/26.htmlOr both:
can "expand" both the layout and the youngster's mind.
(Don't underestimate the power of scenes that "disappear")
If you're going to be building this together with the youngster, I suggest you zero in on specific steps & tasks that you can do together, and prep them before so you can the time enjoying the shared experience.
And leave him with a layout that challenges his mind (for at least a few years to come, and/or fun with switchlists
)
Food for thought.