Keep it simple. Functional Literacy is about reading and writing enough to get important ideas across to others, and to understand the most important ideas coming your way.
I have taken some flak for this one so I'll adjust it be comprised of two levels. The first is the Survival level.
Survival means processing the instructions that may keep you or your child safe. For example... Danger, Keep Out, No Swimming, Hot and so on. Now whether or not they were regarded properly does not mean they weren't understood by your child.
Could your child print 'I am hungry' or 'my leg hurts a lot'. These are trivial examples of drawing attention to an important, possibly life threatening situation. The child must be able to communicate the most basic terms for his or her survival.
The second will be the Proficient level. Proficiency in their literary pursuits will enable them to get by in a job, explain themselves on paper, convince others of their opinion on something quite intangible. To be proficient with one's language skills so as to contribute to society rather than being a burden.
Really, in the end, wouldn't we be happy to see our children accomplish what they must in order to become productive, well-balanced, human beings? It is our job after all to raise and nurture them until we can, like the mother bird, set them free.
Hopefully we all do our jobs well, but sadly, they can't all be
prize winning writers!