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Yet students' engagement with AI tools often clusters at two extremes: avoidance driven by fear, mistrust, ethical concern, or lack of access, and uncritical reliance that produces fluent output while masking misunderstanding. Existing AI literacy frameworks provide valuable competency definitions, but most offer limited guidance for diagnosing where learners begin and how they progress toward responsible, critical engagement. This paper proposes a five-stage AI Literacy Continuum: 0) Not Yet Engaged, 1) Uncritical Use, 2) Informed Use, 3) Critical Evaluation, and 4) Improvement --that describes developmental orientations toward AI use in higher education. 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