1997: Why 'Niece' and 'Nephew Sound so Different Jun 3, 2020
In a family, nieces and nephews have to be related, but the terms for something quite basic and personal in its meaning look very different to one another. In many forms of Indo-European languages, it is the same word for 'grandson' as it is for 'nephew', basically just denoting a younger non-child relative. There are approximated roots of *néptih for women and *népōts for men; you might notice that looks like 'nepotism' and that would be a correct assumption. Even in Middle English, these words looked more similar, with the masculine 'neve' and the feminine 'nift', and the main difference today is because English went on to adopt the dialectal French 'nevu' (nephew) and 'nece' (niece), which are ultimately from the same Indo-European roots, but in the case of 'niece', the [s] sound assimilated from a [t], as in the German 'Nichte'. While many forms today do indeed look different, that is a fairly common process for older and somewhat culturally specific words to really morph over time.
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