When Reading Isn’t Enough: The Silent Impact of Functional Illiteracy on the Digital Economy

Functional illiteracy remains one of the deepest structural barriers to human progress, national competitiveness, and the real ability of individuals to benefit from the accelerating technological revolution. While global narratives often celebrate advances in basic education and access to formal schooling, the reality is far more complex. International data shows that being able to decode letters and words is not the same as understanding, interpreting, analyzing, and transforming text into real-world action. And it is precisely here, between basic literacy and functional literacy, that a widening gap emerges between advanced technologies and the human capacity to fully use them.

Organizations, governments, and companies already operating with artificial intelligence have begun to recognize that the barrier is not the technology itself, but the cognitive capacity of their teams to craft effective prompts, interpret results, assess risks, and turn automation into value. Functional illiteracy, therefore, is not only a social problem; it is a global economic and technological issue.

According to UNESCO, approximately 86.3% of the world’s population over age 15 can read and write at a basic level. The number may seem high indeed, it represents historic progress compared to literacy rates in the 20th century. However, this indicator leaves out an essential dimension: functional proficiency. International research shows that understanding short sentences or signing one’s name is not enough to fully participate in the digital economy. Global literacy reports estimate that hundreds of millions of adults lack the functional skills needed to perform everyday tasks requiring interpretive reading, comprehension of technical instructions, comparison of information, or understanding of forms, contracts, terms of use, or digital dashboards.

The challenge becomes even more complex when we consider that technologies such as generative AI, intelligent automation, and decision-support systems demand not just reading, but critical reasoning, bias checking, logical consistency, and the ability to turn outputs into decisions.

Countries that measure functional literacy, such as those participating in the OECD-administered Programme for the International Assessment of Adult Competencies (PIAAC), which Brazil does not participate in, although several Latin American countries do, offer a more accurate picture. The PIAAC classifies adults into proficiency levels ranging from rudimentary abilities to complex skills in text processing, reasoning, and problem-solving. Individuals below Level 1 struggle to interpret simple instructions, locate explicit information in short texts, and perform tasks that require even minimal integration of concepts. These individuals are considered functionally illiterate, even if they can read isolated words.

PIAAC studies reveal that even in developed countries, a significant portion of the adult population performs at low levels. In other words, even societies with advanced educational systems have millions of people who cannot fully understand spreadsheets, manuals, reports, or technical documents, basic elements of the contemporary economy.

This distinction is essential: it is not enough to measure who “can read”; we must measure who can apply reading and writing to solve real problems. Functional literacy is the true metric of cognitive inclusion and it exposes the size of the gap that artificial intelligence may deepen if strategic interventions do not occur.

Brazil illustrates this challenge clearly. The country’s main consistent national metric, the Functional Literacy Indicator (INAF), shows that approximately 29% of Brazilians aged 15 to 64 are functionally illiterate. This means that nearly 3 in every 10 adults struggle to interpret texts, perform simple calculations, understand work instructions, follow written procedures, verify information, or analyze more complex messages. These findings, widely publicized by organizations studying the INAF, reveal a scenario far removed from Brazil’s absolute illiteracy rate reported by the IBGE, which declined from 6.1% in 2019 to 5.6% in 2022. In other words, although fewer Brazilians are unable to read or write, the ability to apply reading and writing to solve problems remains severely limited for a large share of the adult population.

This creates a Brazilian paradox: access to technology, the internet, and digital devices continues to grow, yet so does the gap between the potential of these tools and the effective use people can make of them. The economy demands skills that many individuals simply do not possess. Insufficient functional literacy becomes a bottleneck for employability, productivity, and technological advancement. And this bottleneck is not visible only in daily life, it lies at the center of corporate operations.

Artificial intelligence, even in its most user-friendly interfaces, is not a magical solution. It requires well-developed cognitive skills. To craft clear prompts, users must write well. To interpret complex results, they must comprehend text. To analyze AI suggestions, they must think critically. To identify inconsistencies, they must compare information. AI does not replace these skills; it amplifies them for those who have them and exposes their absence in those who do not.

Studies from the OECD and international research on digital literacy show a direct correlation between functional literacy levels and the ability to use technological tools for high-complexity tasks. When functional literacy is low, effective adoption of AI drops dramatically.

This reality shows up in corporate environments in many ways. Productivity is the first area affected. Employees with low textual proficiency tend to make more errors when following written instructions, interpreting workflows, or using internal digital systems. This results in rework, operational mistakes, constant supervision, and significant efficiency losses. Reports on the global costs of illiteracy estimate billions of dollars in losses even in advanced economies, considering workplace accidents, waste, ineffective training, and lost time. In countries like Brazil, where low proficiency rates are high, the impact is even greater.

AI adoption also suffers. Companies implementing intelligent automation expect greater speed, accuracy, and cost reduction. However, when 20–30% of the workforce struggles to interpret text and commands, the return on investment (ROI) shrinks. Training costs rise. Supervision demands increase. Quality checks must be intensified. Implementation becomes more complex, requiring additional layers of validation. Instead of accelerating processes, AI ends up exposing the fragility of human capital, directly undermining expected gains.

Decision-making is another affected area. Even the most sophisticated AI models can produce biased, incomplete, or incorrect results. Filtering these outputs critically depends on functional literacy. In teams with low proficiency, there is a greater tendency to accept automated messages without question, heightening compliance, reputation, and operational risks. The lack of analytical reading increases vulnerability in departments such as finance, legal, customer service, and operations. International studies show that when workforces cannot fully understand texts, instructions, and reports, the likelihood of critical errors multiplies.

In innovation, the damage runs even deeper. AI is not just an operational tool, it requires creative interaction. Users must test prompts, compare answers, analyze different approaches, adapt models to specific needs, and participate in building hybrid human–machine solutions. Employees with low functional literacy struggle to engage in these processes. This widens the competitive gap between companies that invest in upskilling and those that do not. Over time, organizations with low average functional literacy become unable to keep pace with digital transformation, reproducing both internal and external inequalities.

Given this scenario, companies need practical strategies. The first is to assess skills before major technology deployments. Internal evaluations of textual proficiency and digital literacy help identify bottlenecks and align expectations for training and adoption. The second is to create targeted upskilling tracks, with micro-courses focused on applied reading, basic numeracy, and structured AI usage. Short, repetitive, and highly practical training sessions are the most effective for strengthening functional competencies.

The third recommendation is to redesign processes with guardrails: checklists, validated prompt templates, verification standards, and control layers that reduce dependence on complex textual interpretation. This allows teams with varying skill levels to operate AI systems safely.

Companies also need to adjust their ROI metrics. Measuring the impact of AI without accounting for training, supervision, and human-capital maturation leads to unrealistic goals. Organizations that incorporate these factors produce more accurate projections. Finally, team composition should evolve: hybrid teams, where highly proficient employees serve as internal mentors, accelerate organizational learning curves.

Functional illiteracy is an invisible but measurable barrier that restricts inclusion, competitiveness, and the ability to benefit from technological advances. In Brazil, roughly 29% of adults face significant functional limitations. Globally, hundreds of millions share this reality. In the new economy, functional literacy is no longer merely a pedagogical concept, it is a strategic requirement. Organizations that understand this and invest in strengthening the real competencies of their workforce will gain a clear competitive advantage, higher returns on AI initiatives, and lower risk of costly mistakes. Technology will continue to advance; the challenge is ensuring that people advance with it.