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.