When youths get close to aging out of foster care, it’s important to plan for emancipation. Aging out of foster care — or emancipating — is the termination of court jurisdiction over youths formally in foster care.

U.S. federal law requires a transition plan to be established six months before a youth’s 18th birthday, but this is a crucial time to plan to ensure a youth’s success and financial future.

Age of Transition and Extended Foster Care by State

Youths may transition out of the child welfare system as early as age 18 or as late as age 22, depending on a state’s age out and extended foster care policy.

Transition planning can help youths, foster parents and child welfare agents to successfully adjust youths to adult life and responsibilities, with an understanding of their educational opportunities, housing options, health insurance and job-search support.

The consequences of failing to do so can be dire. Within 18 months of emancipation, 40 to 50% of youths who were in the foster care system become homeless, according to Foster Focus Magazine.

To help youths in the foster care system successfully transition into adulthood, MoneyGeek seek to identify the financial roadblocks they face and empower them with tools and resources they need to overcome those barriers.

5 Financial Roadblocks Youths Aging Out Face and How to Overcome Them

Understanding the financial roadblocks youths who have experienced foster care face is key to their financial empowerment. Lower levels of education, inconsistent financial role models, financial hardships, lower levels of income attainment and the lack of a safety net are hurdles the youths must overcome.

The risk of not addressing these financial barriers can lead to homelessness, which homelessness may be even starker for LGBTQ youths. Homeless, unaccompanied youths, who represent 6% of the homeless population, are a vulnerable age group consisting of those younger than 25 years old, according to the National Alliance to End Homelessness’s “State of Homelessness: 2022 Edition” report.

1. Inability to Attend or Afford Higher Education

For youths aging out of foster care, the struggles of living with day-to-day adult responsibilities can prove to be a difficult barrier to obtaining a college degree. Many employers may require additional education, such as bachelor’s and associate degrees and vocational or trade certificates. Higher levels of education or trade school can help you find a job or a higher-paying career.

According to the U.S. Department of Education, children in foster care are at a higher risk of dropping out of school and are unlikely to attend or graduate from higher education. A coordinated effort by education and child welfare agencies is necessary to improve the educational outcomes for students in foster care.

“Earning a college degree is an important step toward the middle class. Additionally, higher levels of educational attainment are associated with increased earnings and lower rates of unemployment,” according to the “Foster Care Transition Guide.”

The biggest barrier to continuing education for males and females is the inability to pay for education (59%), followed by the need to work full time (43%), according to a 2011 study, “Midwest Evaluation of the Adult Functioning of Former Foster Youth: Outcomes at Age 26.”

2. Inconsistent Financial Role Models

For most youths transitioning out of the foster care system, they lack strong financial role models. Many young adults learn to be financially secure from their parents, other family members, peers and other trusted adults.

Without financial guidance, youths leaving the foster care system tend to have difficulty understanding and developing strong money management skills, such as budgeting and learning to save. In addition, they may not understand the potential risks of identity theft when it comes to finances.

“Some learn that, as a result of identity theft, they have poor credit histories before they reach the age of majority, and often don’t have the social capital necessary to assist them in resolving problems, placing them at a higher risk for poor, long-term outcomes,” according to “A Financial Empowerment Toolkit for Youth and Young Adults in Foster Care.”

3. Greater Economic Hardships

Financial capability is important for all youths transitioning to adulthood, but it is crucial for youths transitioning out of foster care who have already faced other challenges and are expected to immediately manage their finances. Youths who have experienced foster care typically have greater economic hardships, such as not having enough money to pay rent and/or utility bills, having utilities shut off and being evicted.

In the study “Midwest Evaluation of the Adult Functioning of Former Foster Youth: Outcomes at Age 26,” 45% of participants reported experiencing at least one of five material hardships during the past year compared with 18% of their peers.

4. Higher Levels of Unemployment and Lower Annual Earnings

For adults who experienced foster care, they may experience high levels of unemployment and lower annual earnings.

In the study, “Midwest Evaluation of the Adult Functioning of Former Foster Youth: Outcomes at Age 26,” it followed youths in foster care for about eight years, beginning when the youths were 17 or 18 years old in three states (Illinois, Iowa and Wisconsin). They had to have been in the foster care system before they were 16 years old. Over the years, the total number of participants decreased from 732 to 596.

When the participants were re-interviewed at age 25 to 27, nearly 80% believed they needed additional education to achieve their career goals.

Only 9% of the young adults were participating in a job training program. And only 46% of study participants were currently employed compared with 80% of the control group, which is a nationwide representative sample of 25- to 26-year-olds.

On average, participants who were looking for a job had been searching for 5.3 months, and more than 20% had been searching for a year or longer.

Study participants also reported they earned significantly less than those in the control group. According to the study, the “difference in median annual earnings between the groups was more than $18,000.”

5. No Safety Net From a Biological Family

For most families, youths and young adults have a parent, extended family member or a sibling to reach out to when they need help. A strong safety net can help young adults get back on their feet when they are in trouble or hurt — whether physically, mentally or financially. It can also allow young adults to learn from their mistakes and navigate their adult life with ease.

The most significant challenge facing youths who have experienced foster care is a lack of a support network, particularly in the form of biological family members who can transfer knowledge, help with preparations and serve as a financial safety net in case of emergencies. There isn’t an extended family to turn to in times of crisis, such as a medical emergency or job loss, to avoid homelessness.

“Transitioning to adulthood is difficult for all young people,” the Foster Care Transition Toolkit states. “We know that foster youth may face even tougher challenges when they, seemingly overnight, are required to independently make decisions. It’s a lot to take on, but there are support systems and resources to help you succeed.”

Expert Advice on Education and Finances
1. What are the challenges facing youth transitioning out of foster care?
2. What does aging out of foster care mean?
3. What percent of foster kids end up homeless?
4. How can people help youth aging out of foster care?
5. What kinds of financial barriers do youths face when emancipating?
6. What immediate financial steps should youths take when they are emancipating?
7. What sort of timeline is appropriate for youths once they age out of foster care? What’s the first step?
8. Are there mental and behavioral health resources to support youths during this transitional period?
9. Are there certain scholarships and/or grants that youths transitioning out of foster care qualify for?
10. What kind of resources are available to help emancipating youths with career transitions and job applications?
11. What are some ways foster parents can teach youths about finances and financial planning before they emancipate?

Svvy^TM 2023 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. Svvy^TM does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. Svvy^TM holds no liability for the accuracy or timeliness of the information provided.