The first-ever national study of basic skills in Welsh found that literacy levels were highest among young people in Wales.
Almost three-quarters of the 16-24 age group were able to read and write Welsh well. Their "level 1" basic skills equated to GCSEs at grades D-G or higher, according to the research carried out by the Basic Skills Agency.
However, the 2004 survey - of 1,363 16 to 64-year-old Welsh-speakers across the country - found that literacy levels fell sharply among 35 to 44 and 60 to 64-year-olds, more than half of whom were at entry level 3 or lower (below GCSEs).
Those in south-east Wales had the highest literacy levels, although regional variations in skills were less significant than those related to educational qualifications and people's occupations. Regardless of region, Welsh-speakers found reading and spelling easier than writing and punctuation. Overall, literacy levels in Welsh compared well to those in English in Wales.
Tony Schiavone, executive director of Basic Skills Agency Wales, said:
"It's encouraging to see that Welsh-medium education is having a positive impact on literacy levels among young adults.
"However, there's a clear need to provide additional support and guidance to enable those adults who can speak Welsh to use their skills confidently in the workplace and in formal situations."
The research report suggests that the higher levels of literacy among younger Welsh-speakers are down to improvements in education or just that school lessons are more fresh in the minds of people still in full-time education or who have only just left.
And the better results in south-east Wales may be down to more than half of the respondents there having attended Welsh-medium secondaries. The region's Welsh-speakers are also more likely to have degrees (44 per cent compared to 28 per cent in the rest of Wales) - and may have moved there in search of better-paid work.
Those in the south-east achieved higher marks when asked to spell six Welsh words, with two-thirds scoring top marks compared to just 45 per cent in the north-east of Wales.
Martin Lloyd, headteacher of the 944-pupil Ysgol-y-Preseli at Crymych, in Pembrokeshire, said he was encouraged by the report's findings.
"I am glad to see the Welsh-medium sector is expanding because it means a greater part of the Welsh population will be bilingual in the future," he added.
"Although the standard of teaching has improved tremendously over the past number of years, it is still essential for Welsh-medium schools to succeed in both Welsh and English, otherwise they will lose the confidence of parents.
"As far as I'm concerned the most important department in any Welsh-medium school is the English department."
Other findings to emerge from the 60-page report are that Welsh-speakers are more likely to use the language at home than at school, college or in the workplace. Half of Welsh-speakers feel most comfortable when using Welsh, while another quarter feel equally at home conversing in English or Welsh.
But while 65 per cent were very confident of using the language in local shops, or to order a pint down the pub, a third were "not very" or "not at all" confident about using Welsh at the doctor's surgery, and more than a quarter felt the same way when dealing with the local council or their bank.
While more than half (55 per cent) said they could read Welsh very well, slightly less (46 per cent) rated their ability to write well.
The researchers found a close link between people's perceived ability to speak Welsh and their actual ability to read and write the language.
One in 10 respondents had finished their education at age 14, while 13 per cent (mostly 16 to 24-year-olds) were still studying.
Just over half had attended a Welsh-medium primary school.