Here's a decent beginner's setup. You should also pick up a carving glove, a strop and stropping compound.

This is about the cheapest you're going to get away with for a setup with good tools that are versatile and of a quality to last a good while.

As for wood to start, Basswood is the best wood for beginners and is also used by professional carvers. Here's a good starter pack that will get them going for a while.