16GB iPod touch is $229, the 16GB iPhone 5c is $549 - that's a $229 difference. And as for the 32GB it's $299 and $649 - a $349 difference. And then there's the 64GB iPod touch for $399 which is still $149 less than the 16GB iPhone 5c. As I said, for a kid who doesn't need a phone yet, an iPod touch is the right device.
Okay, in what scenario will you buy an iPod Touch over an iPhone?
A) If you are strapped for cash? You wouldn't buy an iPod Touch in this case. Someone who is strapped for cash would probably opt for an Android phone as it would be around the same price and fulfill the exact same functions but have more features. It would probably also have a larger screen. For the $229 difference (which you probably won't pay outright if you are strapped for cash), you get a rear-facing camera, GPS and cellular technology, so it is a more all-rounded device
B) For your kid? Your 4 year old would benefit greater from the iPad Mini apps as they are more immersive. Education apps are easier to see and more plentiful. Again, if you are buying your 4 year old an iDevice, the price difference probably doesn't matter to you. If they are in their teens, they would much rather have a phone. This is a fact.
If you want an iOS device that is the size of the iPod touch without paying for phone service, then you get an iPod touch. The iPod touch still does several things well. I get good photos on it. It's very good for a small portable book reader. Oh yeah, it still plays music well. Not to mention all the assorted apps that are really good.
This is a very specific niche of people.
First, you have to want an iOS device exclusively. This is very narrow minded.
Second, you have to be oblivious as Apple is selling themselves as a premium brand. If you can't afford it, you have to be oblivious to your own financial status or the fact that Apple doesn't sell cheap products. You are reaching here and should probably look at other products. You are also oblivious to other companies. There are many great companies that make products that are the same price if not less than an iPod Touch with very similar features (albeit not running iOS). You can also buy an Android phone without paying for the phone service. It still has wifi.
With the base-model iPod Touch prices, you probably won't get a phone with a good camera, but then again, the base-model iPod Touch doesn't have a rear facing camera. So, in this case, you'd be looking at the 32GB model iPod Touch. At that price, you can get some pretty good cameras on your phone. Also, at the 32GB pricing, you can get an iPad Mini, which has better apps and the same camera.
To summarise, the iPod Touch is not a good:
a. music device (iPod Shuffle/iPod Nano/iPod Classic)
b. small all round device (Android phone/old iPhone/iPhone 5C)
c. kids' (learning) device/media device (iPad Mini)
d. camera (an actual camera/iPhone/iPad Mini)