Wednesday, 01 Jan 2025
PETALING JAYA: The current income group classifications of B40, M40, and T20 do not accurately reflect the true economic stratification of Malaysian households, according to a study by Khazanah Research Institute (KRI).
In its latest working paper, “Searching for the ‘poor’ and ‘middle class’ in Malaysia,” KRI featured an updated expenditure-space model that redefines household classifications based on actual spending patterns.
The findings reveal the underlying structure of household expenditures, ranging from basic needs to complex goods and services.
“The findings raise an important question about the validity of the current household demarcation of B40, M40 and T20 adopted by the Malaysian government,” KRI said in a statement on Monday.
Malaysia has consistently followed the World Bank’s B40/M40/T20 framework, as outlined in the Ninth through Eleventh Malaysia Plans from 2006 to 2020, KRI added.
For nearly 15 years, most policies equated the B40 with poor households and the M40 with middle-class or “aspirational” households, it said.
KRI suggests that these groupings may not be as precise as assumed, as households within each range do not possess similar characteristics of consumption.
Hence, KRI said its findings challenge the existing B40, M40 and T20 classification and instead, highlighted distinct household behaviours, such as the B20 households that are focused on meeting basic needs such as food, housing and clothing.
The M50, according to KRI, are economically unstable households navigating trade-offs between essential and aspirational goods.
KRI pointed out that, consequently, it would be more accurate to claim that only the top 30% of the total households are in the middle-class or aspirational class, rather than the originally assumed 60%, which combined the M40 and T20.
“The T30 households exhibit aspirational consumption patterns indicative of the middle class, but are not necessarily ‘wealthy’ by global standards,” it said.
KRI noted that the current demarcations do not differentiate between the rich and the poor but instead provide a relative comparison of “who is richer” and “who is poorer”.
For example, in a poorer country, the wealthiest households might still be considered “poor” by the standards of a richer nation, yet they remain the most affluent within their local context.
“So, if we understand the limitations of what the demarcations can tell us, then it may prove useful in determining policies to implement to attend to the problems associated with specific groups and their corresponding brackets,” KRI explained.
