strategies tailored to the distinct needs of the particular community. financial education and financial literacy financial education has not only been integral to community development but has also begun to play a larger role in the broader consumer market. clearly, to choose wisely from the wide variety of financial products and providers available, consumers must have at least basic financial knowledge. people who understand the financial aspects of purchasing a home or starting a business, or who appreciate the importance of saving for children ’ s education or retirement, will almost certainly be economically better off than those without that vital information. financial literacy can be acquired through many channels : in school, on the job, through community programs and counseling, or through self - education and experience. studies generally find that people receiving financial education or counseling have better financial outcomes. for example, research that analyzed data on nearly 40, 000 mortgage loans targeted to lower - income borrowers found that families that received individual financial counseling were less likely later to become delinquent on their mortgage payments. 3 similarly, another study found that borrowers who sought and received assistance from a credit counseling agency improved their credit management, in particular, by reducing the number of credit accounts on which they carried positive balances, cutting overall debt, and reducing delinquency rates. 4 more broadly, the research shows that financial knowledge is correlated with good financial outcomes ; for example, individuals familiar with basic financial concepts and products have been found to be more likely to balance their checkbook every month, budget for savings, and hold investment accounts. 5 studies that establish an association between financial knowledge and good financial outcomes are encouraging, but they do not necessarily prove that financial training and counseling are the causes of the better outcomes. it could be, for example, that counseling is associated with better financial outcomes because the consumers who choose to seek counseling are the ones who are already better informed or more motivated to make good financial decisions. in medicine and other fields, researchers gain a better understanding of what causes what by doing controlled studies, in which some subjects are randomly assigned a particular treatment while others do not receive it. to translate this idea to the analysis of the effects of financial counseling, the federal reserve board ’ s division of consumer and community affairs is collaborating with the department of defense to conduct a threeyear study of the effects of financial education. this study will evaluate the impact of various educational programs on the financial decisions of soldiers and their families. it includes a treatment group of those receiving financial education, with the programs each family receives

to helping families of modest means build assets and improve their economic well - being include community economic development, financial education, and programs that encourage saving and investment. in the remainder of my remarks, i will discuss each of these approaches briefly and offer some insights into their effectiveness based on research and experience. community economic development in my time with the federal reserve, i have had a number of opportunities to meet with community economic development leaders - - representatives of groups working to assist lower - income families become homeowners, start small businesses, better manage their finances, and save for the future. in fact, my first trip as a federal reserve board member was to brownsville, texas, where i saw how a grassroots nonprofit organization is helping to build communities and to provide residents with the chance to build wealth through homeownership. the community development corporation ( cdc ) of brownsville works with multiple funding partners - - governments at all levels, financial institutions, foundations, and corporations - - to construct housing and to design innovative loan products that enable low - income families to qualify for mortgage credit. for example, because of the mix of funding sources, mortgage loans can be offered with features such as down - payment assistance or a belowmarket interest rate. the cdc of brownsville also offers a program that allows prospective homeowners to acquire " sweat equity " in a property by working on construction teams to help build their own new home and those of other participating families. as in the case of many community development organizations, the brownsville cdc has also made financial education a critical element of its efforts to help lower - income residents improve their financial status. for example, participation in financial counseling or in an education program is typically required for a borrower to obtain a loan through the cdc or through one of its lending partners. however, the broader aim of these programs is to improve borrowers ’ prospects for longer - term success in maintaining their credit and handling their overall finances. since 1994, through this combination of leveraged financing arrangements and borrower education, the cdc of brownsville has helped make homeownership possible for more than 2, 500 low - income families. i cite the brownsville example because of the opportunity that i had to learn about their work ( and i recently had a similar opportunity to see some impressive community development efforts in the anacostia neighborhood of the district of columbia ). but this localized approach to community development and wealth - building is playing out in neighborhoods throughout the country, in most cases through