Personally, I think it should be HIS decision. But I'm afraid I also blanch at your "huge investment". Is this all for his benefit, or are you hoping he will succeed where perhaps you failed, years ago?
I did 'informal' music with primary children for twenty years; keyboard, recorder, percussion, and encouraged them to 'compose' and 'improvise' where possible, but there was never any aim at Grades etc, as I was not qualified, and was only 'an enthusiastic amateur' but I was able to give children a 'taste' of music.
There is evidence that music enhances academic learning, and it certainly has social benefits for older children, playing in school or county ensembles:
see James Rhodes' site: www.dontstopthemusic.co.uk/
By 'step 2' do you mean Grade 2 ABRSM, which is the standard music yardstick?
Guitar is a DIFFICULT instrument, to play properly and well. I would think a brass or wind instrument might produce quicker results and satisfaction. It also slots more easily into an ensemble environment.
You are probably right in saying less effort is required for the second instrument, as the basics of notation and timing will already have been learnt. Also Theory needs to be learnt at some stage, and this is often considered daunting. But all music is based on the laws of Physics and Maths, and is not a secret 'black art' as the uninitiated often suspect.
But at 8.5 he is 'his own man' and if you try to run his life for him, you could be storing up trouble in the longer term.