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The Financial Gap
for Foster Care Youths

By Sue Coyle, MSW

Today, more and more youths are choosing to remain at home after high school and even after college, relying on their parents and their parents’ house to help ease them into the “real world.” The time spent at their childhood home enables young people to become financially stable or, at least, financially confident and capable so that they feel able to live independently when the time is right. However, there is a subset of youths who don’t have that opportunity—youths who range in age from 18 to 21 are transitioning out of foster care.

“The emphasis in child welfare is to get young people into permanent families quickly,” explains Clark Peters, PhD, MSW, JD, an associate professor in the School of Social Work at the University of Missouri. “The first priority is to get them back into the family of origin, and if that’s not going to happen, the next best option is adoption or subsidized guardianship. But there’s this other group [of youths] who do not get unified and do not get adopted. If you become 14, 15, 16 years old, the odds of getting adopted drop.

“They get assigned to a permanency goal of APPLA [another planned permanent living arrangement] and remain in foster care until they are an adult.” The definition of adult depends on the state and could be 18 or as old as 21. Peters, however, notes that even in states where youths can remain in care until 21, most do not.

As a result, young adults are entering the workforce or world of postsecondary education without a consistent safety net and the financial education and experience they need to be successful.

The Problem

It is true that many young adults make financial mistakes with or without a safety net. 

“To refer to them as mistakes is accurate but incomplete,” Peters says. “That’s what you do. This is part of the developmental stage that [the youths] are in. For many, this is the first time they have had their own cash. Who wouldn’t go out and buy a nice set of clothes? And then you realize you don’t have money for groceries. So yes, it’s a mistake, but I don’t want people to think the youths are living high.”

Youths may live beyond their means or take advantage of student loans without fully understanding their repercussions, for example. “The other thing that is really dispiriting about this is how many people there are out there that are poised to take advantage and exploit these young people,” Peters says. “There are very few good bank products if you’re low-income.” He recalls a young person who went over the limit of his check card by $1.50 at a gas station. “The charge was rejected by the gas station, which cost a fee. At the bank, there was a penalty. Then, the gas station tried to charge it again.”

In the end, the youth paid more than $100 to rectify the $1.50 error—an amount Peters maintains most individuals would not have paid. “We would have called to challenge the charges. But because [the youth] lack the education needed and financial sophistication, he paid. In the youth’s mind, he did the right thing.”

This could happen to any youth, regardless of whether or not he/she has been in foster care, but youths transitioning out of foster care are in a unique situation.

“Young people transitioning from foster care, particularly those who are not connected to a family, often don’t have the benefit of one consistent adult in their life to help them navigate the world of finances and assist them with the inevitable emergencies that can mean the difference between being financially secure and financially insecure,” says Sandra Gasca-Gonzalez, director of the Jim Casey Youth Opportunities Initiative.

“Many of these young people end up in group placement settings where they don’t have an opportunity to practice financial management and are left on their own when they turn 18 [or 21],” she says. “We know from years of research that financial insecurity contributes to a host of negative outcomes for this population, including homelessness, poor educational outcomes, unemployment, and incarceration.”

Foundational Assistance

A seemingly simple solution to the problem is financial education, either before or after youths transition out of foster care.

“There has been increased awareness of the need for financial education for these youths,” says Michael Pergamit, PhD, senior fellow at the Urban Institute. “But I doubt that much has changed. Child welfare struggles with the need for basic financial education combined with real-time financial education.

“There have been increased attempts to use key points in time to help youths,” he notes. “For one, child welfare agencies are now required to obtain youths’ credit reports before they turn 18 to determine if there has been identity theft. Some agencies are using this as an opportunity to talk with youths about their credit score and issues of obtaining credit and building and maintaining good credit. Another time is when housing support is offered. Typically, this involves teaching budgeting and requiring youths to make a budget and focus on making sure they can pay rent and for other essentials before engaging in discretionary spending.”

But this type of education can’t be the only source of assistance. It won’t work. “Financial literacy without experience doesn’t do much,” Peters says. “You need to pair guidance with real practice. You need an account; you need money; you need to make mistakes with that money. You need to practice saving money.”

Additionally, the lessons need to apply to what youths may truly experience. For example, youths may not trust a bank, but without an account, their options for pay are limited and often costly. “If you work at Walmart and don’t have direct deposit, you get paid on a plastic check card. It can cost you to withdraw, to check your balance,” Peters says.

Next-Level Assistance

Fortunately, individuals and organizations throughout the country are aware that basic financial education is a starting point, but most definitely not the stopping point. Programs are being created to help guide these youths through their transition to independence. The Jim Casey Youth Opportunities Initiative is a significant part of the creation.

“The Jim Casey Initiative helps by providing opportunities to practice managing money, setting financial goals, and building assets in critical areas such as housing and postsecondary education. And, we ensure they have supports that help them face financial challenges,” Gasca-Gonzalez says. “We have integrated several strategies to help young people with financial capability.”

The Jim Casey Initiative designed a curriculum called Keys to Your Financial Future, which not only provides education but assistance in opening a bank account and the opportunity to set and work toward financial goals with staff. Additionally, Gasca-Gonzalez reports that some Initiative sites are staffed with financial coaches (professional and volunteer). “[They] work with young people with individual financial needs, including budgeting, securing loans, and clearing credit problems,” she says.

There is also the Opportunity Passport. “The Opportunity Passport program provides young people with a chance to gain real-world experience with savings and matches purchases for various assets, including cars, educational expenses, and small-business development and, in some cases, debt resolution,” Gasca-Gonzalez says. “Adults support young people as they make decisions about the best purchases to help them achieve their goals.”

The Jim Casey Initiative has also partnered with the Consumer Financial Protection Bureau to create Your Money, Your Goals. Peters speaks highly of it: “It really is more than a curriculum. They call it a toolkit because there are a lot of different things programs can use. It provides a lot of good information for reaching not just young people but their foster parents and social workers as well.” It allows those who may work or interact with the young people to also improve their financial literacy. “[It] brings people up to speed on what they need to know to negotiate a complicated financial landscape,” Peters says.

Moving Forward    

These programs and toolkits, however, are not the end, either. There is still more that needs to be done to help youth financially during and after their transition out of foster care.

“We aim to see financial capability integrated into everyone’s work to improve well-being for at-risk youth,” Gasca-Gonzalez says. “We want to see this work become a part of everything we do, whether it’s focused on education, youth employment, or others areas of youth well-being.”

And from Peters’ perspective, that’s a worthy goal.  

“I find these young people incredibly inspiring. Those who meet them do as well. They’re making huge decisions, facing the consequences most young people don’t have to. They’re forced to grow up fast. That’s risky,” Peters says, “but for those who are making it, it’s amazing.”

— Sue Coyle, MSW, is a freelance writer and social worker in the Philadelphia suburbs and a frequent contributor to Social Work Today.