Using latent variable structural equation modeling, we tested a theoretical model linking financial strain, neighborhood stress, parenting behavior, and adolescent adjustment. The sample consisted of 305 African American families living in inner city neighborhoods. Of the families, 40% were living at or below the U.S. poverty threshold. The primary caregiver and a focal adolescent (mean age 13.5 years) were interviewed separately in each family. The results indicated that the income-to-need ratio was significantly related to financial strain and neighborhood stress, both of which were positively associated with psychological distress in parents. Parent psychological distress was positively related to more negative and less positive parent–adolescent relations, which predicted a lower positive and higher negative adjustment in adolescents. The results extend previous findings by demonstrating that neighborhood characteristics are an important mediator between economic hardship and parent and adolescent behaviors.