Using latent variable structural equation modeling, a family economic stress model that links economic well-being to child well-being in an ethnically diverse, low-income sample of 419 elementary school-age children was evaluated. The sample was 57% African American and 28% Hispanic, and most families were headed by single mothers. The results provided support for the position that family process is a critical mediator of the effects of economic hardship on children's social adjustment. Lower levels of economic well-being, and the corollary elevated perceptions of economic pressure indirectly affected parenting behavior through an adverse impact on parental psychological well-being. Distressed parents reported feeling less effective and capable in disciplinary interactions with their child and were observed to be less affectionate in parent–child interactions. In turn, less than optimal parenting predicted lower teacher ratings of children's positive social behavior and higher ratings of behavior problems. Multiple-group analyses revealed that the pathways by which economic hardship influences children's behavior appear to operate similarly for boys and girls, and for African American and Hispanic families.