As part of the development of a functional literacy test for fourth through eigth grade children in Title I compensatory education programs, this report defines functional literacy for children and enumerates criteria for evaluating existing tests. Criteria for selection of a test include: (1) content, empirical, and construct validity; (2) appropriateness of the test for the examinee population, including disadvantaged children; (3) technical quality, including reliability and normative standards; and (4) usability by non-expert personnel, objective machine scoring procedures, and interpretation. The test should be an independent entity rather than components of an achievement test battery. The test will be in English, but a Spanish-language version should also be available. (MH)