The study, by the Institute for Social and Economic Research at Essex University, found that racial prejudice had an impact on children as young as five.
Youngsters from the families affected were likely to struggle with cognitive tests and faced more socio-emotional problems than other children their ages.
The findings were based on a study of 2,000 five-year-olds from ethnic minority backgrounds and their mothers.
Of the women, more than one in five had faced racist abuse, 23 per cent suffering verbal insults in the past 12 months, 20 per cent reporting unfair treatment and 23 per cent reporting unfair treatment of a family member.
Researchers found that their children were more likely to have socio-emotional issues, such as hyper-activity or problems interacting with peers.