The committee found foster children are moved too often
Concerns have been raised about the frequency with which children in care are being moved around foster carers.
A report into the placement of children in care by the assembly's children and young people committee found one child was moved 11 times in seven years.
Assembly members said money should not be an obstacle to giving children in care the best chance in life.
They added that local authorities should value positive, long-term outcomes over short-term savings.
The committee heard personal evidence from children and young people who had experienced the child placement system.
Many paid tribute to the foster carers they had stayed with, but concerns were raised about the amount of times some had been moved.
One young person told the committee he was moved 11 times in seven years.
Chair Helen Mary Jones said: "This is a particular concern to the committee. We heard that since 2006 the number of children who had been placed three or more times within a year had dropped by four per cent.
"While this demonstrates an improvement, the committee doesn't feel it is good enough and the Welsh government must work with local authorities and child welfare organisations to improve that figure."
The AMs' report, following a 10-month inquiry, makes it clear more must be done to give children in care the best possible chance in life.
The committee found that, despite insight gained in working with children, foster carers were excluded from decisions concerning the children in their care.
The report recommends the Welsh assembly government produces legally binding guidance to ensure local authorities listen to children, foster carers and other advocates.
One fostered child told the committee: "I never had a say until I was 16 years old."
Barnardo's Cymru, Children in Wales, the Fostering Network and Action for Children all gave evidence to the inquiry.
They concluded there were plenty of examples of good practice in Wales, but in some instances process and procedure were being put before the best interests of the child.
Ms Jones said: "These vulnerable children must be put at the heart of any decision involving their future. No two children have the same needs.
"By trying to squeeze them to fit into a rigid process we risk doing more harm than good."
The report contains 33 recommendations spanning areas covered from the initial placement process through information sharing and support for children, young people, foster carers and support workers.
Director of Fostering Network Wales, Freda Lewis, said the recommendations could lead to a real improvement in the lives of children and the families that care for them.
She said: "Particularly welcome are the Welsh Assembly Government's commitment to improving fostering services' communication with foster carers, and a recognition that foster carers are professionals within the child care workforce and should be treated as such.
"We're also pleased that the committee has understood the need to encourage local authorities to allow foster carers to make day-to-day parenting decisions for the children they look after, and hope this encouragement actually translates into action ensuring children in care don't continue to miss out on school trips and other childhood activities unnecessarily."
Barnardo's Cymru spokesman said foster carers must be regarded as part of the professional team of people delivering the best placement possible to that child or young person.
He said: "Unfortunately, there is variable experience of this with, all too often, foster carers not being included in vital meetings or included in the sharing of information - despite them often being the people who know the child best."