Financial Literacy Training for Foster Care Youth

Introduction: Preparing Foster Youth for Independence

One of the objectives of foster care should be to provide what any parent or guardian provides — preparing youth for the adult world. When a young person graduates from the foster care program, the goal is that he or she will have all of the skills and tools needed to survive independently. Financial preparation and independent living skills are among the most critical components of a successful transition out of the system.

Challenges Facing Foster Care Youth After Exit

Reilly (2003) identified some of the issues that foster care youth face when they exit the system. They are generally thrust into the real world without sufficient training, forced to fend for themselves without adult guidance. The result, Reilly notes, is a series of negative outcomes that appear commonplace among former foster care youth. Among other difficulties, they are often unable to meet basic living expenses, struggle to earn enough money to do so, and cannot obtain adequate health care. One of the key issues Reilly identifies is that while youth reported having access to education on independent living, there was no meaningful follow-up. Without concrete assistance, the education they received was relatively ineffective. Reilly thus suggests that education must be supported in some practical way in order to be effective. This is reasonable: many former foster care youth enter the workforce at a young age, holding low-wage jobs that make it difficult for even a highly disciplined individual to balance a bank account, let alone an 18-year-old who has just left foster care.

Cook (1994) argues that this situation is all too common. Foster care youth tend to perform roughly in line with youth who grew up below the poverty level — that is, more poorly than the general population on measures of adult success. Cook's study showed that independent living skills training was particularly lacking. Foster care youth are far more likely than other young people to live independently between the ages of 18 and 24, yet are typically ill-equipped to do so.

Cook interviewed foster care graduates to determine how smoothly they had transitioned to independent living. She found that they struggled with key social outcomes such as completing their education, early parenthood, and reliance on public assistance. On a positive note, Cook found that recent changes to the legal environment — at the time of her study — had encouraged more training in money management, credit, and consumer education. This enhanced training appeared to give survey respondents greater confidence in these areas, even if they otherwise struggled to advance up the socioeconomic ladder.

Courtney and Heuring (2005) also examined the transition from foster care to adulthood and the challenges that former foster care youth face. Describing these young people as essentially society's children, the authors argue that government has an obligation to ensure they are as well-equipped as possible for adulthood, given that they will lack the parental support system available to most other children. Support from families is widely recognized as "an important contributor to successful adolescent transitions to adulthood" (Courtney & Heuring, 2005), which means the level of financial literacy training must arguably be higher for children in foster care, prior to their leaving the program, than it would need to be for other teenagers of the same age.

Almost all former foster care youth struggle to achieve financial independence (Courtney & Heuring, 2005), and many continue to rely on public assistance. In one survey, 53% of respondents reported major financial problems such as being unable to afford food. Based on the research, significant gaps remain in providing adequate financial training to children in foster care, though the authors note that many end up earning wages insufficient to lift them out of poverty.

Financial Literacy in the General Population

A Federal Reserve report (2002) notes that financial literacy is a problem for members of the general public, not just for foster children. Consumers broadly lack working knowledge of financial concepts and therefore do not possess the tools they need to manage their everyday economic well-being. Training programs have been developed to address this need, often targeting specific subjects or audiences. The report notes, however, that "the effectiveness of financial literacy training has been mixed."

In a follow-up study, Lusardi (2008) examined household saving behavior and found very low levels of financial literacy, despite ongoing policy efforts to address the problem. Few people, despite their lack of knowledge, seek outside help. Lusardi again finds that while programs exist and should theoretically help, they are generally not very effective and may require significant improvement.

References

Cook, R. (1994). Are we helping foster care youth prepare for their future? Children and Youth Services Review, 6(3–4), 213–229.

Courtney, M., & Heuring, D. (2005). The transition to adulthood for youth "aging out" of the foster care system. In D. Osgood (Ed.), On your own without a net. University of Chicago Press.

Federal Reserve. (2002). Financial literacy: An overview of practice, research and policy. Federal Reserve Bulletin, 88, 445.

Lusardi, A. (2008). Household saving behavior: The role of financial literacy, information and financial education programs. Federal Reserve Bank of Cleveland.

Lusardi, A., Mitchell, O., & Curto, V. (2010). Financial literacy among the young: Evidence and implications for consumer policy. CFS Working Paper No. 2010/09.

Reilly, T. (2004). Transition from care: Status and outcomes of youth who age out of foster care. Child Welfare, 82(6), 727–746.