"ability to read and write," 1883, from literate + abstract noun suffix -cy. Illiteracy, however, dates back to 17c.
Entries linking to literacy
literate adj.
"educated, instructed, having knowledge of letters," early 15c., from Latin literatus/litteratus "educated, learned, who knows the letters;" formed in imitation of Greek grammatikos from Latin littera/litera "alphabetic letter" (see letter (n.1)). By late 18c. especially "acquainted with literature." As a noun, "one who can read and write," 1894.
-cy
abstract noun suffix of quality or rank, from Latin -cia, -tia, from Greek -kia, -tia, from abstract ending -ia (see -ia) + stem ending -c- or -t-. The native correspondents are -ship, -hood.