The Children's Society's annual Good Childhood report looks at a raft of data surveying children's views and rates their overall happiness out of a scale of one to 10.
For the first time in 10 years this score has fallen below the eight out of 10 mark when children were asked about their happiness with "life as a whole".
While in 2009/10 the score was 8.17 out of 10, by 2016/17, the latest year where results are available, this had fallen to 7.89 out of 10.
Its survey of children also asked what worries them most about the future.
It found that almost one in five (17 per cent) are worried about their mental health, with those living in poverty likely to be most worried about their mental wellbeing.
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Out of a scale of one (most worried) to seven (least worried), those not in poverty rated mental health concerns at seven, while those in poverty gave a rating of five.
Local Government Association children and young people board chair Anntoinette Bramble said that "significant funding pressures" on children's services mean that many councils are "struggling to provide" support in areas such as mental health which, "young people so desperately need".
"They are also being forced to cut some of the vital early intervention services, including youth services and school nurses, which can support children with low-level mental health issues and avoid more serious problems in later life," she added.
"It is absolutely vital that the government adequately funds these services in the Spending Round, so we can tackle this urgent crisis and make sure children get the help they need."
This survey also found that 33 per cent are worried about not having enough money, with 29 per cent worried about getting good grades at school and a job.
Specific areas of children's lives where they are most likely to be unhappy are their appearance, at school and school work.
Attitudes to friendships have fallen over the last decade, the charity's research shows.
Children rate their happiness with friends as 8.59 out of 10 in 2016/17, the lowest in a decade. In 2009/10 the figure was 8.99 out of 10.
The Good Childhood report includes the Children's Society surveys of parents and children, the charity's specific survey of Year 10 pupils as well as further analysis and surveys of children's views including the Children's World study.
The charity's report says the figures suggest about a quarter of a million children in the UK could now be unhappy with their lives.
"Our research points to a variety of important factors" relating children's sense of happiness, states the report.
"Children are increasingly unhappy with their friendships," it adds.
"For years, we have reported girls' struggles with how they look, but this year we report a significant decline in boys' happiness with their appearance since 2009.
"The evidence about school is also concerning - surprisingly this is not necessarily to do with school work and learning. Instead our findings point to wider issues like school culture, the experiences of those with low or strained family finances, and whether or not some children actually feel safe during the school day.
"Too many children are struggling with their lives right now, and large numbers are also anxious about their future. Large proportions of children are worried about everything from money and getting good grades at school, to wider issues like crime and the environment."
To promote the report, The Children's Society has opened a temporary store in central London with items designed to reflect "modern childhood".
The items are not for sale but are on display and also online, to represent challenges children face.
This includes stab vests, a notebook with the word "hurt" prominently scribbled in it and phone cases with messages of fear and worry to represent the threat of cyberbullying.
OPEN TODAY - The Store of Modern Childhood
— Children's Society (@childrensociety) August 28, 2019
Each product brings to life the stories young people tell us. Only by listening to young people can we ensure a store like this doesn't become the norm.
Our latest report listens to young people > https://t.co/CrKGE3EMCz #IHearYouth pic.twitter.com/kxt4KAprsd
