Khazanah Research Institute's (KRI) latest study challenges the accuracy of Malaysia's existing income group classifications, revealing that the current B40, M40, and T20 groups do not reflect the true economic realities of households. The findings suggest a need for a more nuanced understanding of economic stratification in the country.

The research, published on Dec 30, 2024, in KRI's working paper titled "Searching for the 'Poor' and 'Middle Class' in Malaysia," identifies the Top 30% (T30) income earners as the only group exhibiting middle-class spending patterns. In contrast, the Middle 50% (M50), which falls between the B20 and T30, remains economically vulnerable, grappling with trade-offs between essential and aspirational spending.

"The findings raise an important question about the validity of the current household demarcation of B40, M40, and T20 adopted by the government of Malaysia," KRI stated, noting that these income classifications may no longer reflect the reality of modern consumption behaviour.

For almost 15 years, from the Ninth to the Eleventh Malaysia Plan, Malaysia has relied on the World Bank's classification of B40, M40, and T20. However, KRI argues that these groups do not exhibit uniform consumption patterns, with those in the M50 category—despite falling between B40 and T30—still facing significant economic challenges.

"These households demonstrate only minor differences from the B20 group. They may indulge in some discretionary spending, such as dining out or sending children to tuition, but their consumption patterns remain relatively homogenous and characterised by limited access to aspirational goods," KRI noted.

According to KRI, the M50 group cannot be considered middle-class, as it remains economically vulnerable with a limited capacity for aspirational consumption. The institute suggests that only the top 30 per cent of income earners should be classified as middle-class or aspirational.

The paper also highlights the need for policymakers to update classifications for more targeted interventions. KRI advocates for an integrated-expenditure framework that moves beyond outdated categories. This approach, KRI believes, will ensure that resources are allocated where they are most needed.

KRI further recommends that policymakers focus on interventions such as targeted subsidies for education and healthcare, alongside job creation initiatives, to help improve the economic stability of the M50 group and support upward mobility.

The institute also called on the government to prioritise the B20 group, ensuring access to affordable housing, food, healthcare, and other basic necessities to safeguard their well-being.

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