Building the Financial Capability of Youth Transiting out of Foster Care

By Brown, Desmond | Children's Voice, Fall 2016 | Go to article overview

Building the Financial Capability of Youth Transiting out of Foster Care


Brown, Desmond, Children's Voice


Developing effective moneymanagement skills is important ^ for all young people as they transition to adulthood. It's especially important for youth transitioning out of the foster care system who may have limited family support and financial resources to fall back on. In the United States, roughly 23,000 youth aged out of foster care in 2013.1 Most received transitional services to help with housing and employment, but many did not receive the level of service necessary to improve their financial knowledge, skills, or access to appropriate financial services.

For youth leaving care, even a small amount of savings can play an important role in finding housing and transportation. Many transitioning youth don't earn enough money to save or fully understand the benefits of saving. A sample of youth who have aged out at 19 years old had median financial assets of only $100, and only 30 percent owned a vehicle.2 Furthermore, many youth exit care with compromised credit records, making it difficult for them to borrow at affordable rates, or, in some cases, rent an apartment or get a job.

A study on the County of Los Angeles's child welfare system found that 5 percent of youth in foster care with credit reports incorrectly had accounts reported in their names due to errors or identity theft.3 These inaccuracies include creditor mistakes, the incorrect use of a youth's name or Social Security number on delinquent accounts, and more deliberate identity theft. Young people with damaged credit records will likely have trouble buying a car, getting an affordable mobile phone contract, or in some cases finding a job. Child welfare systems can prevent some of these challenges by integrating financial capability strategies as part of their youth transition planning. This process could include early and regular credit checks to ensure that youth under 18 years of age do not have damaged credit records. Implementing age-appropriate financial education programs to teach about credit and effective money management skills could also help reduce barriers.

Improving Financial Capability among Youth in Care

Measures of financial capability4 are much lower among younger Americans, those with household incomes below $25,000 per year, and those with no post-secondary educational experience.5 Many youth exiting care fall into one or more of these categories. That's why helping these youth develop effective personal finance practices are critically important to their long-term economic stability.

Organizations serving youth may provide training on managing and building credit, budgeting, developing savings plans, and selecting appropriate financial products to meet their needs. Some of these support services are generally available to youth in transition; however, the timing of the training, how the training is delivered, and the ability to put lessons learned into practice are all critical components and should be considered when developing a financial capability integration strategy.

Changing Policy Environment

Congress recognizes the need to incorporate financial capability services into programs that serve vulnerable youth. The Preventing Sex Trafficking and Strengthening Families Act of 2014 requires state child welfare agencies to provide youth aging out of foster care with important documents that are critical to successful transition. These documents include birth certificates, Social Security cards, driver's licenses or identification cards, health insurance information, and medical records.

The legislation also requires states to provide children ages 14 and older with a credit report annually, along with an age-appropriate review of their records. This requirement provides an opportunity for child welfare agencies to help youth understand what's on their credit reports, clear up errors that might have occurred, and help them see the importance of maintaining strong credit records. …

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