My grandson was 4 last October. I had decided to make him a 6x4 00 layout, we live near the Bluebell so he has seen and travelled behind steam engines several times.
As an 0 gauge modeller for over 30 years I was a bit out of touch with 00 thought I had built a layout in the loft for my son when he was about 7 or 8 (thirty years ago). I bought everything secondhand, he has 4 engines and some wagons and couches. I reckon the whole lot including baseboard and controllers has cost in the region of £200.
So, the first time it was presented to him the reaction was 'wow' and 'cool'. At first it was simply one engine and one oval of track, but of course it has grown. Now we don't get it out every time he comes round, and although he likes watching the trains and changing the points etc it doesn't hold his attention for more than 15 to 20 minutes at a time. But that's fine. As he gets older he might find more play value, or he may just lose interest. Either way, it is something he enjoys and if in the end I have to dismantle it I'll get some of the money back.
By the way, my son loved the loft layout and took his friends up there, but it was of course too hot in the summer and a bit chilly in the winter. He has never followed up model trains, but the interest is still there so who knows for the future? He may even build a layout for the grandson ....
All the best.
Terry