© The Author 2015. Background: Parental investments in children are an important determinant of human capability formation. We investigated the causal effect of household expenditure on Indonesian children's cognitive function between 2000 and 2007. We also investigated the effect of change in mean cognitive function froma simulation of a hypothetical cash transfer intervention. Methods: A longitudinal analysis using data from the Indonesian Family Life Survey (IFLS) was conducted including 6136 children aged 7 to 14 years in 2000 and still alive in 2007. We used the inverse probability of treatment weighting of a marginal structural model to estimate the causal effect of household expenditure on children's cognitive function. Results: Cumulative household expenditure was positively associated with cognitive function z-score. From the marginal structural model, a 74534 rupiah/month (about US$9) increase in household expenditure resulted in a 0.03 increase in cognitive function z-score [β=0.32, 95% confidence interval (CI) 0.30-0.35]. Based on our simulations, among children in the poorest households in 2000 an additional US$6-10 of cash transfer resulted in a 0.01 unit increase in cognitive function z-score, equivalent to about 6% increase from the mean z-score prior to cash transfer. In contrast, children in the poorest household in 2007 did not benefit from an additional US$10 cash transfer. We found no overall effect of cash transfers at the total population level. Conclusions: Greater household expenditure had a small causal effect on children's cognitive function. Although cash transfer interventions had a positive effect for poor children, this effect was quite small. Multi-faceted interventions that combine nutrition, cash transfer, improved living conditions and women's education are required to benefit children's cognitive development in Indonesia.