Maturity plays a big part in this, but I have always found that when kids discover how to figure songs out on their own, the fun factor goes up exponentially. As soon as I can get them playing some basic open chords, I pull out an extremely simplified version of the circle of fifths, and explain that most of the songs they hear on the radio are the I, IV, and V chords of a particular key, and that by listening to the song a few times, they can teach themselves how to play it (in any key). Once they have this down, they not only get very excited (because they can play half the songs they know), but they also start asking questions when they run into something different.
If they're too young to understand that, just let them bang away!
Also, NELA makes a good point: Instrument size is extremely important, and depending on the student, generally, I recommend nylon strings for anyone younger than 8.