This study investigates the effects of a child's family income relative to the income of his or her neighbors. Relative deprivation theory predicts that having less than others in your reference group leads to negative psychological and behavioral outcomes. In contrast, theories of neighborhood resources predict that affluent neighbors are a valuable asset for children, even if such neighbors make children feel deprived. I define relative advantage as the income gap between children and their lower-income neighbors and find that it has no effect on their test scores, self-esteem, or behavior. In contrast, relative disadvantage (the income gap between children and their higher-income neighbors) has a positive and significant effect on these outcomes, including self-esteem. This analysis distinguishes between the number of higher-income families and the magnitude of their income advantage, and it addresses the potential influence of selection bias. © 2002 Wiley Periodicals, Inc.