If ever there was a teachable moment for financial educators, this is it. The market meltdown and intractable recession have most people more focused on their personal balance sheets than ever before, and they're full of intentions to improve. Luxury sales are on the down and out, as individuals try not to be. It's a great time to talk about money.

No one would dispute the contention that financial literacy is a good thing. Even august figures like Federal Reserve chief Ben Bernanke are espousing it. But what does financial literacy really mean? More important, how can advisors actually improve their clients' financial literacy, so they can make more informed and productive choices? Most important of all, will anything an advisor teach actually change clients' behavior over the long run?

Part of the challenge is there are a bewildering array of vendors, approaches, techniques and experts to choose from, ranging from large town meetings and simple brochures, to formal classroom course work with content that could encompass the basics or zoom ahead to advanced trading strategies suitable for a hedge fund. There's also a great deal of confusion about what financial literacy entails: Is it knowing the difference between a stock and a bond? A want and a need? When to hold tight and when to adjust long-term and/or tactical allocations? How to trade options?

Another question is how to make the information stick. "Adult financial education can be successful, but you have to catch adults when they are interested in learning," says David Wray, president of the 401(k) Council, the Chicago-based industry group. "And everyone is interested, given today's economic environment."

Advisors need to decide what type of education will resonate most strongly with their clients and prospects, many of whom may have moved to cash in 2008 and still have not decided what to do next. What's more, advisors should be aware that whereas financial literacy is seemingly the most benign and least controversial of topics, some behavioral economists question if it has much lasting value. Therefore, though educational presentations may be an effective tool for creating a positive public profile-and an excellent marketing device-they will not lighten the long-term load of working one-on-one with clients.

LOW-IMPACT MESSAGES

"Not every kind has been evaluated, but the rigorous evidence that exists suggests to me that financial literacy programs targeted to adults are not effective," say James Choi, finance professor at the Yale School of Management. Choi is referring to his own findings as well as those of other researchers. In one randomized trial (to be published as "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds" by James Choi, David Laibson and Brigitte C. Madrian in the Review of Financial Studies), Choi and colleagues explained the importance of fees to index fund returns to 730 subjects, who included highly educated individuals such as Wharton MBAs and Harvard administrators. The message and the information were quite prescriptive, directing participants to go for low-fee index funds. But when it came time to choose among otherwise similar index funds, subjects who had received the lesson did not take it to heart. Instead they chased returns, regardless of fees.

Other rigorous evaluations of adult financial literary interventions have found a similar lack of impact. For instance, in the research study, "Saving for Retirement and the Path of Least Resistance," published in 2006 as a chapter in Behavioral Public Finance: Toward a New Agenda, Choi and other behavioral economists analyzed employee actions for two months following a financial literacy seminar stressing the importance of saving for retirement. The result? No change in savings behavior.

Choi's conclusion is bleak. "The effects of financial literacy interventions are usually small," he says. "They simply aren't game changers."

Traditional financial literacy efforts, with their eat-your-spinach approach of "you must save more" or "this is a stock and this is a bond," still may not resonate with clients. Nevertheless, advisors report, clients are responding to educational efforts that deal frankly with what is happening today, and which find ways to address clients' fear—and their greed. The most successful educational presentations respond directly to the crisis, discussing how clients can best recover from it and, even better, how they can profit from it. Broker-dealers, including LPL and Securities America, have offered preapproved presentations to their clients, as have custodians and asset managers. Individuals' behavior may not be changing, but they are listening—and signing up for more.

CRISIS INTERVENTIONS

"We are seeing huge interest in offerings related to the crisis," says John Diehl, senior vice president and head of The Hartford's Retirement Solutions Group. The Hartford has created two major presentations, available as seminars, webinars or in a town meeting format. Crisis to Confidence explains the financial crisis from a historical perspective, and what it could mean for investors going forward. The follow-up, A Personal Recovery Guide, explains the historical returns of various asset classes, and shows ways to rebuild hard-hit portfolios. The seminars, which debuted last October, can be used by all advisors—not just Hartford affiliates—and can be rebranded as an advisor's own response to the crisis.