I was trying to think of what this reminded me of and I got it.
This is kind of like the situation with those parents who filmed their 2 boys bawling their eyes out over the "Timothy Green" movie, teased their kids while filming and put it on youtube.
Nowhere in the teasing and filming did either parent say "It's just a movie, it's not real, the kid is an actor, he didn't really die."
The neighbor's kid needs to be told and taught (by the parents) that the witches and ghosts aren't real, they're just plastic, they're nothing to be afraid of.
Do some parenting, people!