It's true that it's tough for a teen to feel left out, but the thing is, are you aiming to get him a phone that's "acceptable" or do you really want him to understand that you can live without the latest trendy model?
Because honestly, those are two different approaches. If it's just a budget thing, a decent phone that's not brand new can do the job - he'll have something that works and it takes some of the social pressure off without you going broke. But if you really want to teach him some independence when it comes to consumption, he needs to understand why you're making different choices. That means showing him concretely what it costs financially, not by telling him "we don't have the money" (he can sense it, he already knows), but by explaining your family's real priorities. Like, "that money, we're putting it toward X instead" - vacation, a project he cares about, his education, whatever.
The other thing is to reassure him that his friends aren't going to ditch him because he doesn't have an iPhone 16. At 12, it can feel huge, but really, teens don't care that much once he can text and take normal photos. And if it's really eating at him, an honest conversation about how everyone's life is different can help him put it in perspective.