I’ve never had a kid kart to work on kid kart, but with that said, you could be running too long of a chain. A shorter chain would move the engine back and the chain away from the chassis.
Also, is it possible the run a small gear on the engine? With the smaller gear on the engine, the rear gear could be reduced in size and move the chain away from the chassis, but you would still have to resize the chain as well.
Have seen nylon chain guides for a chain, but a quick look this morning did not result in finding any.
LAD Specialties customer / tony kart / rotax / kt100