This study investigated children's ability to interpret a natural social situation, depicted in a narrative story, and to use their understanding of that situation to generate and apply a mental model of debts and assets in solving problems including negative quantities. Fifty-one American students from a parochial school in a predominantly middle class, suburban community, and five Indian boys between the ages of 10 and 13 years old from Calcutta were subjects for the study. The American children were approximately half boys and half girls, 10 second-graders, 12 third-graders, 17 fourth-graders, and 12 fifth-graders. The Indian children only occasionally attended school and were all employed as houseboys. Each child participated individually in a two-part procedure. The first task was to reply to a series of questions about a story concerning the financial difficulties of a character named Sam. The second task was to solve a total of 16 equations by adding or subtracting negative numbers that paralleled the signed number problems presented in the story situation. Results indicated that children showed superior performance on problems posed in the context of the story, in contrast to their ability to solve isomorphic problems presented as formal equations. Those children whose performance was most enhanced were unschooled children from India. The debts and assets analogue appeared to encourage the use of a Divided Number Line model, resulting in difficulties when children had to perform calculations involving crossing over the zero amount from a debts to an assets status. (MDH)