Through the administration of standardized tests, questionnaires, and an inventory of educational progress designed to assess the application of skills, an effort is made to analyze the literacy, functional literacy, and factors related to achievement in a population of 181 eighth-grade students selected from an inner-city population and a middle-class suburban population. Results indicated a significant discrepancy between the achievement of urban students and of suburban students and between literacy skills and their application to practical problem situations. Factors associated with literacy level included continuity of school attendance, parents' educational backgrounds and occupations, availability of magazines and newspapers in the home, parental interest in education, early identification of reading difficulties, student concern about general ability, expressed concept of reading ability, and expressed attitude toward school. (Author/AA)