Institutional discrimination - that is, awareness of systematically embedded discrimination in institutional rules and practices - compromises the opportunities and prospects of individuals based on their group membership. Among adults, the mere awareness of institutional discrimination against one's group can compromise well-being and mental health. How early does this detrimental dynamic emerge? In the current study, we examined the impact of growing up as a member of a disadvantaged minority that suffers from institutional discrimination on children's well-being. Specifically, we investigated how early awareness of institutional discrimination emerges, and what impact such early awareness has on emotional difficulties, behavioral difficulties, and social belongingness aspirations. We tested this in a sample of 113 Arab-Palestinian 8-13-year-old citizens of Israel. Using a child-friendly story, children were asked to estimate how the Israeli government would allocate different desirable and scarce public resources between a Jewish and an Arab town, and children's social belongingness aspirations (e.g. wanting to leave the country when they grow up). Mothers reported on their child's emotional and behavioral wellbeing. We found that awareness of institutional discrimination increased with age, with children older than 11 being almost twice as likely to expect the Israeli government to prioritize the Jewish over the Arab town than younger children. Importantly, expectation of institutional discrimination predicted greater emotional (but not behavioral) difficulties among the early teens, but not among the younger children. A similar pattern was found for belongingness aspirations. These results suggest that the awareness of institutional discrimination starts early for children of a disadvantaged minority, and that the negative psychological impact of such awareness is evident already among early teens, with emotional and social expressions. These findings further emphasize the extent that institutional discrimination can impact both individuals and society as a whole.