Well, you made me do some work!!
I think "identity formation" means "شکل گیری شخصیت" and it's a subject, dealt with in psychology. I found a related sentence ascribed to Erik Erikson (a notable figure in psychology):
Noteworthy stage theorist, Erik Erikson, has illustrated the importance of identity formation in youth lives, further asserting that the age old question of ‘who am I’ becomes salient around the ages of 12 to 18 because for the first time, adolescents are able to understand the importance of identity and that exploration is the primary means by which to achieve it.
My personal opinion is that instead of expressing this concept (هویت بخشی), as a compound noun, we can put it into a sentence. In order to find a good sentence I had some guesses and I checked them on google. Results:
"help them find their identity" 1,120,000 hits
"help them build their identity" 335,500 hits
So we might say something like this:
We need to help our youth find (build) their identity.
ما باید به جوانانمان کمک کنیم که هویت خود را پیدا کنند (بسازند)ا
فکر میکنم جمله بالا همان منظور"هویت بخشی" را میرساند.
However if we want to be more accurate we could use the word "self-esteem". Here are my google searches:
"help them build their self-esteem" 947,000 hits
"help them build up their self-esteem" 133,000 hits
"help them raise their self-esteem" 65,600 hits
"help them boost their self-esteem" 36,200