This chief aim of this paper is to explore the concept of Funds of Knowledge (FOK) in relation to Cultural Historical Activity Theory (CHAT). This study unveils the basic tenets of FOK from the lens of activity theory and analyzes pertinent discoveries, key concepts, and scholars’ arguments relating to FOK and literacy development over time. The major purpose of this study is to expand the perspective of FOK and make an argument that cultural identity has a great potential to promote school literacy. The literature review done on some education journals explicitly reveals that FOK is a concept embedded in one’s cultural identity, and that the various aspects of cultural identity – such as ethnicity, language, and customs – are all linked to student engagement. This article illuminates the diverse cultural resources of different ethnic groups and proposes that academic institutions connect those resources with education.