Financial Challenges Facing Youth in Transition: What Advocates Should Know

Vol 33 No 3

“A lot of times in care you have things constantly managed for you, so you do not get that education on money management. They do life skills classes but that is maybe one class every four years with no real follow up. Lucky for me I had a mentor (who is now my mother) and a few really good friends. That helped me get back on my feet when I hit rock bottom.”  —Anthony Stover

Anthony is one of thousands of former foster youth left unprepared financially for adulthood. Youth aging out of foster care lack the family support other youth have, including financial help and planning. This article explores three financial challenges many youth face while transitioning from care, and what advocates can do to help them become financially responsible adults.

Since the Fostering Connections to Success and Increasing Adoptions Act passed in 2008, many states passed laws extending support for foster youth to age 21. While these laws generally provide for transitional living support, they do not help youth navigate this critical time; guidance that non-foster youth get from their families. 

The median age of self-sufficiency for the average American is 26. American parents give about $50,000 to each of their children after age 18. Parents also advise on major decisions, guard important documents, and often provide housing.1 

Former foster youth get none of this support from the state, their de facto parents. They are at risk of poor credit scores based on fraudulent use of their identities. They also face barriers to accessing and receiving their social security benefits, and lack knowledge to successfully plan for their financial futures. 

Left on their own, former foster youth have high levels of unemployment, arrests, and suicide rates. And over one-third of them experience homelessness.2 As advocates who represent children in foster care, you can help ensure your older clients are prepared to become financially responsible adults. 

Financial Challenges

Poor credit histories

Credit matters. Just ask Marion Simmons, who spent most of her life in the New Jersey child welfare system. Aging out of foster care, she realized she had been a victim of identity theft while at a group home. She had never had her credit checked, or knew what that meant. She has struggled to straighten out the problem and has had trouble getting help for school, building her savings, and paying medical bills. 

Research suggests that 5-10% of youth in foster care have negative credit files due to creditor errors, incorrect or fraudulent use of a youth’s name or social security number on delinquent accounts, or identity theft or fraud.3 Having bad or no credit affects every part of an adult’s life: getting a loan, buying a house or car, obtaining insurance, renting an apartment, or applying for a job. 

Child identity theft occurs when someone uses a minor’s identifying personal information to commit fraud by opening new lines of credit, applying for a job, or applying for car loans or a mortgage.4 Because of their transient histories, the frequent sharing of their personal information, and not having parents to protect their information, many foster children are easy targets. In some cases, it is the parents themselves who use their child’s personal information because of their own poor credit.5 Whether because of true identity theft or creditor error, the result is the same for youth transitioning from care: they were, until recently, left to struggle with the effects of bad credit alone.

In response to growing concern over this topic, President Obama signed a new provision of Title IV-E into law in 2011. This provision created a federal mandate for child welfare agencies to request a copy of every child’s credit report, starting at 16 years old and each year after, until the child is discharged from care. Further, that child is entitled to receive assistance from the child welfare agency “(including, when feasible, from any court-appointed advocate for the child) in interpreting and resolving any inaccuracies in the report.”6 

What can you do? 

Advocate for state laws that implement the federal credit check requirement of The Child and Family Services Improvement and Innovation Act of 2011.7 

Find out how your state is implementing the federal credit check requirement. Most states’ child welfare agency policies require checking foster youth credit. Only a few states have legislated in this area: 

Maryland passed the Child Identity Lock Bill in 2012, which allows parents to contact credit agencies and freeze their child’s information. This could protect not only children, but also disabled or elderly persons at risk for identity theft.

Help the youth understand and build credit. 

The Credit Builders Alliance has a reference guide for accessing credit reports for foster youth. It goes over the procedures, explains how to interpret the report, empowers youth to think about credit and its impact, and shares financial education resources for youth.8 

Help youth clear false credit reports.

There are several strategies for resolving credit issues for young people:9

  • Direct dispute with businesses
  • Dispute with credit-reporting agencies
  • Filing a police report10 
  • All strategies involve at least some of the following steps:11
  • Contact the credit reporting companies.
  • Place an initial fraud alert.
  • Consider a credit freeze.
  • Call every company where an account was fraudulently opened or misused.
  • File a report with the Federal Trade Commission (FTC).
  • File a police report.
  • Get an Identity Theft Report. 
  • Ensure the youth preserves and secures the documents they need when leaving care.

One way to prevent identity theft is to urge the youth to obtain, safeguard, and track their personal information:12 

  • social security number
  • bank account information (pins, passwords, etc.)
  • financial statements 
  • credit or debit information 
  • driver’s license or state 
  • identification number 
  • birth certificate
  • medical records
  • educational records 
  • health insurance number 

Social security benefits

As many as 24,000, or 6%, of children in foster care receive Supplemental Security Income (SSI) or another social security benefit.13 Social security benefits (or old-age, survivors, and disability insurance benefits) and SSI provide benefits for children under Titles II and XVI of the Social Security Act. Social security benefits are paid to children of workers who are disabled, or have retired or died. SSI benefits are paid to children who are severely disabled or blind. To receive any of these benefits, a child must have a representative payee. In most cases, the representative payee is assigned by the Social Security Administration (SSA) to manage the funds and serve the best interest of the child beneficiary.14

In the case of foster children, the SSA may designate a payee from an ordered list of preferences. The preferences include the child’s custodial or noncustodial parents, guardians, relatives, stepparents, or a close friend.15 An authorized social services agency is last on the list of preferences. However, most child welfare agency policies designate the agency as the representative payee for a child who is eligible to receive such benefits, and these benefits are then automatically used to reimburse the state for the cost of providing foster care.16 Further, federal law does not require an agency to notify the child, the attorney/GALs, or the juvenile court that it has applied to be or has been appointed as a foster child’s representative payee.

Few agency policies discuss conserving social security funds for a child’s use after they age out of care.17 Many children who are eligible for SSI support do not access or receive it, and those who do receive it generally do not even know they are getting such support, or how to secure these funds after they reach majority.18 Those who do not receive this economic assistance, particularly those eligible for SSI, are denied such benefits as an alternative source of monthly income, access to subsidized housing, vocational training, and expanded access to health services. 

What can you do? 

Screen the child for SSI and other social security benefits before they leave care.19 

  • Insist the child welfare agency screen the foster child for Social Security benefits and SSI eligibility at initial intake, periodically, and long before they exit care.
  • If the child qualifies, follow up with the agency to make sure that application is submitted on behalf of that youth. 
  • Once a youth turns 18, there is a cumbersome process for SSI redetermination. Help the youth reapply.20 

Advocate for alternative representative payees.

  • Lawyers and advocates who know the child best can help identify others who might serve as the child’s payee. They can inform the agency and court how this person can help address the child’s needs and navigate the process to become her own payee upon reaching the age of majority. 

Ask your state legislature to pass laws that ensure every disabled foster youth exits care with SSI benefits already in place. 

  • Some states have passed legislation that aims to provide disabled youth with vital economic assistance once they exit care by mandating consistent protocols for screening youth and submitting applications.21 
  • California, for example, passed State Assembly Bill 1331 (AB 1331) to ensure disabled foster youth exit care with SSI benefits in place. AB 1331 requires screening foster youth for eligibility when they are at least 16.5—and no more than 17.5—years of age.22 

Financial planning 

Financial planning is a big challenge for young people. Determining how to save, and plan for rent, food, bills, and school requires long-term education and support. Basics like having a bank account and understanding how it can help a youth learn to manage money, accumulate interest, establish credit, and pay bills can be tricky for a youth who has not grown up in an environment where this is the norm. The lack of knowledge to help successfully plan for their financial futures affects the outcomes of former foster youth dramatically. For instance, despite the 70% of youth who age out of foster care and plan to attend college, only 3% completed a bachelor’s degree.23 

What can you do? 

Help the youth open a checking or savings account, and develop a monthly budget. 

  • By focusing on how much a youth can earn, save, and spend, the youth can figure out how much money is needed to spend on rent, bills, and other expenses.24 

Investigate options for creating Independent Development Accounts (IDAs) for your client.

  • IDAs are special savings accounts that match deposits of low and moderate-income savers, provided they participate in financial education and use the savings for targeted purposes (most commonly for postsecondary education, homeownership, or capitalizing a small business).25 

Explore Opportunity Passport-IDAs designed for youth who have aged out of foster care. 

  • The Jim Casey Youth Opportunities Initiative designed an Opportunity Passport program to aid young people between the age 14 and 24 who have been in foster care on or after their 14th birthday. This special IDA allows young people to purchase approved assets like education, a car, housing, investments, microenterprises and health care, and receive a dollar-for-dollar match up to $1,000 a year. Participants in this program also receive developmentally appropriate financial literacy training, asset training and have a personal bank account. Currently, this program has 15 sites across the country.26

Determine if the youth may benefit from direct payment of foster care maintenance funds. 

  • If the youth is in a supervised independent living setting, and there is no actual provider or other child-placing intermediary, the Title IV-E agency may pay foster care maintenance payments directly to the youth. Some have interpreted “supervised setting” to include host homes, college dorms, shared housing, semi-supervised apartments or supervised apartments.27 

Advocate for financial literacy legislation for foster youth.

  • For foster youth, this form of support has been codified in law. For example, many states have taken the federal requirement of a transitional plan and expanded it to include money management and financial education. Other states have included the need for financial education as part of a life skills class in transitional or independent living programs. Some states have codified that right for a youth in foster care.28

Help the youth plan for college financial aid.29 

  • Help the youth seeking to enroll in college with the Free Application for Federal Student Aid (FAFSA). 
  • The FAFSA form asks the youth to file as dependent or independent. Independent students do not need to provide parent financial information on the application, and may qualify for more financial aid.30 Section 480(d)(2) of the Higher Education Act of 1965 defines an independent student who “is an orphan, in foster care, or a ward of the court, or was an orphan, in foster care or a ward of the court at any time when the individual was 13 years of age or older.” To qualify as a “ward of the court” a youth generally must provide  documentation before the school can provide financial aid. This usually means a copy of the court order that declared the child a ward of the court. Sometimes, a letter from the judge clarifying whether the child is a ward of the court for student aid purposes is necessary.
  • Make sure the youth is excluding Title IV-E payments as income when calculating a student’s Expected Family Contribution.31 

Explore programs and scholarships designed to assist foster youth succeed in college.32 Use federal programs:

  • The Pell Grant
  • Education and Training Voucher Program, which provides up to $5,000 to youth ages 18-26 who were formerly in foster care.33 
  • TRIO Programs, which provide support services about college admissions, financial aid, academic counseling, tutoring and mentoring.
  • Educational Opportunity Centers, which provide counseling and information on college admissions to qualified adults who want to enter or continue a program of postsecondary education.34
  • Gaining Early Awareness and Readiness Undergraduate Programs, which provide counseling, mentoring and support services to low-income students starting in seventh grade. 

Explore state tuition waivers programs.

  • Several states have passed legislation that allows foster youth to attend college for a reduced rate. In Connecticut, for instance, the department pays the full cost of college attendance, tuition, fees, room and board, books, tutoring, transportation, and health care.35 
  • Guardian Scholars, which provides support to former foster youth in their pursuit of a higher education degree or beyond at an accredited institution by assisting students receive academic advising, year-round housing, job assistance, tutoring, financial aid and mentoring. 


Advocates are in the best position to help youth in transition become financially responsible adults. Youth aging out of foster care are at risk of poor credit scores based on fraudulent use of their identities, face barriers to accessing and receiving social security benefits, and lack knowledge to help them successfully plan for their financial futures. An advocate who cares, understands the complexity of the financial challenges, and has access to resources to assist the youth can provide guidance to youth who do not have anywhere else to turn. 

Margaret Riley is a third-year law student at Emory University School of Law. She interned at the ABA Center on Children and the Law during summer 2013.

What Youth Say: Barriers to Becoming Financially Secure

“I remember sitting in the financial aid office, surrounded by kids with their parents and families, and I was alone. I had no clue what to do and had to have every detail of the form explained to me. There was no box to check for “foster kid” when I went to school. Taking out a personal loan was incredibly difficult as well. Who knows the difference between interest rates? Simply understanding what was going on and how to shop for different rates, and what that meant for me in the long run, was so difficult. And even if you make it through all that, one unforeseen cost can change everything. I know of so many foster youth who had to drop out of school because of a parking ticket, an unusually high utility bill or a family member’s medical bills. We don’t have parents to call to borrow $200. Instead, we have to get a job, miss classes, fall behind on work and drop out. The institutions just aren’t prepared for foster kids. And no one prepared us for them.” –Mason McFalls 

“My biggest financial challenge has been caring for my car. I was driving much more than normal, requiring more general maintenance, along with a few major breakdowns I needed to fix. With financial aid, I was able to balance my housing and other school-related expenses. In general, I would ask my lawyer to be more involved in my life and my case. I came from a small town and there were other lawyers who knew more about what was happening in my case than my own lawyer did. If I needed something major, I was determined to find a way to make that happen, but for other youth, that may not be the case.” –Tina Woods


1. Delgado, Melanie et al. The Fleecing of Foster Children, How We Confiscate Their Assets and Undermine Their Financial Security. Children’s Advocacy Institute of the University of San Diego School of Law, 2011.

2. Ibid., iii.

3. GoldbergBelle, Staci and Sarah Chenvon. Credit Builders Alliance: Accessing Credit Reports for Foster Youth: A Reference Guide for Child Welfare Agencies. Credit Builders Alliance, 2013.

4. Administration for Child and Families, U.S. Department of Human Services. Program Instructions on Annual Credit Report Required by the Child and Family Services Improvement and Innovation Act. Log No. ACYF-CB-PI-12-07. May 8, 2012.

5. For more information on financial identity theft, see Clemente, Jean. "Protecting and Defending a Young Person in Foster Care from Financial Identity Theft." ABA Child Law Practice 29(12), February 2010.  

6. The Child and Family Services Improvement and Innovation Act of 2011, P.L. 112-34, amending part B of title IV of the Social Security Act. 

7. P.L. 112-34, Section 475(5)(I).

8. GoldbergBelle and Chenvon, 2013.

9. The Annie E. Casey Foundation developed a guide for “anyone who is responsible for mentoring, supporting or working with youth or young adults in foster care” which is broken down into five steps that adults can take to help young people understand credit and, in the event of identity theft or fraud, to clear credit problems. Miller, Jennifer and Rebecca Robuck. Youth and Credit, Protecting the Credit of Youth in Foster Care. The Annie E. Casey Foundation, 2013.

10. This strategy could come with its own considerations depending on the relationship the youth has with the perpetrator and the reason for the identity theft. 

11. Administration for Child and Families, U.S. Department of Human Services. Program Instructions on Annual Credit Report Required by the Child and Family Services Improvement and Innovation Act. Log No. ACYF-CB-PI-12-07. May 8, 2012.

12. Florida’s Big Bend Region developed a service for foster youth called MyJumpVault. It is an online database of information relevant to youth currently in care and youth aging out of care. It allows a youth to have immediate access to documents and resources on education, employment, medical issues, and identification. 

13. Moulta-Ali, Umar, Adrienne L. Fernandes-Alcantara and Emilie Stolzfus. Child Welfare: Social Security and Supplemental Security Income (SSI) Benefits for Children in Foster Care, Congressional Research Service (CRS), RL33855, Sept. 28, 2012.

14. Delgado, Melanie et al. The Fleecing of Foster Children, How We Confiscate Their Assets and Undermine Their Financial Security. Children’s Advocacy Institute of the University of San Diego School of Law, 2011.

15. The complete orders of selection can be found at 20 C.F.R. §404.2021 and 416.621.

16. In Washington State Department of Social and Health Services v. Guardianship Estate of Keffeler, the Supreme Court held that a state, as the representative payee for a foster child receiving Supplemental Security Income (SSI) or Social Security benefits, could lawfully use the child’s benefits to reimburse itself for the cost of foster care. Those who advocate that benefits should not be used by agencies to offset foster care costs argue that SSI and other Social Security benefits should instead be preserved for the child’s future.

17. An analysis of 25 states with accessible agency policies online found that only 7 policies discussed the child receiving any money from the funds after reaching majority. The states studied include: Alaska, Arkansas, Arizona, Connecticut, California, Colorado, Delaware, District of Columbia, Florida, Illinois, Iowa, Kansas, Michigan, Missouri, Montana, North Carolina, North Dakota, Oklahoma, Oregon, South Carolina, Texas, Utah, Virginia, Washington and West Virginia. The states that discussed the child receiving any money from the funds after reaching majority include: Alaska, Connecticut, District of Columbia, Florida, Illinois, Michigan, and Texas.

18. Delgado et al., 2011. 

19. California has developed guidelines to assist youth in applying for SSI. Best Practices Guidelines for Screening and Providing for Foster Children with Disabilities. California Department of Social Services, All County Letter No. 07-10, February 28, 2007.

20. The Social Security Website discusses how to understand SSI Redeterminations.

21. A new policy allows the SSA to accept an SSI application from a youth up to 90 days before his or her foster care eligibility ends due to age. SI 00601.011 Filing Supplemental Security Income (SSI) Application for Disabled Youth Transitioning out of Foster Care. 

22. Haley, Hannah., Chris Lee, Angie Schwartz,  and Amy Leney. Two Years Later: Has California’s Approach to Securing SSI Benefits for Disabled Youth Who “Age Out” of Foster Care Made a Difference. John Burton Foundation for Children Without Homes.

23. Casey Family Programs. Foster Care by the Numbers, September, 2011.

24. Developmentally appropriate online resources for budgeting and money management include: Money SKILL educates high school students on the basics of money management including income, expenses, savings and investing, and Money Smart for Young Adults from the FDIC for Youth Aged 12-20. 

25. The Corporation for Enterprise Development (CFED) is a 501(c)3 program that empowers low and moderate income households to build and preserve assets. They have a directory that can be used to find IDA programs.

26. These sites are Hawaii, New Mexico, Nebraska, Iowa, Indiana, Michigan, Mississippi, Tennessee, Georgia, Florida, North Carolina, Rhode Island, Connecticut, Delaware, and Maine. 

27. ACYF-CB-PI-10-11, p. 9, July 9, 2010. 

28. Florida, for instance, has codified the right of a foster child to open a bank account to acquire essential banking and budgeting skills, as well as life skills classes including credit management and financial literacy skills classes. FL Ch. 39701(3)(a)(5), and Ch. 409.1451(3)(a)(b)(3). 

29. For more information on education and foster care, visit the Center on Children and the Law’s Legal Center for Foster Care and Education website.

30., "Who is an Independent Student?

31. Start Here Go Further Federal Student Aid. Extended Foster Care Payments. July 3, 2013.

32. For more information on college financial aid planning for foster youth, see Providing Effective Financial Aid Assistance to Students from Foster Care and Unaccompanied Homeless Youth: A Key to Higher Education Access and Success.

33. For more information on the program, see the Child Welfare Policy Manual

34. U.S. Department of Education. Educational Opportunity Centers Program.

35. National Resource Center for Youth Development. Tuition Waivers Policy.