Functional literacy is interpreted as the ability of the individual to apply skills in reading, writing, calculation and basic problem-solving in those activities in which literacy is required for effective functioning in his/her own group and community. The paper describes the rationale, development and administration of the test used for measuring levels (high, moderate, low) of achievement in functional literacy in three domains (document, prose and quantitative). An assumption of the study was that a high level of functional literacy was required for the individual to function effectively in his/her own group and community. The context of the study is Guyana the most underdeveloped and impoverished country in the English-speaking Caribbean. The subjects are out of school youth in Guyana aged 14-25. Amongst the main findings are: only approximately 11% of the young people show a high level of functional literacy; females tend to have a higher level of functional literacy than males: and most of those at the low level never went beyond primary and low status secondary schools and usually end up unemployed or in semi- or unskilled jobs. Attention is drawn to the difficulty of attracting funding for literacy programmes from international aid agencies, given the inflated adult literacy rate which is reported for Guyana in international statistics. While they credit Guyana with an adult literacy rate of 97.5%, the study suggests that a more realistic figure is in the 70s. The importance of adult and continuing education is underscored in view of the need to help those who are out of school to meet the ever-changing demands of society for improved skills in literacy and numeracy.