In Malaysia, the terms "poor" and "middle-class" are frequently used, yet their definitions can be ambiguous. A recent report by the Khazanah Research Institute (KRI) delves into these classifications, shedding light on the economic realities of Malaysian households.
KRI identified significant deviations from the existing Bottom 40 (B40), Middle 40 (M40), and Top 20 (T20) classifications, thus offering a new perspective on economic stratification.
The findings raise an important question on the validity of the current household demarcation of B40, M40 and T20 adopted by the government of Malaysia.
Malaysia has consistently followed the World Bank’s demarcation of B40 / M40 / T20 from the Ninth Malaysia Plan (9MP) to the Eleventh Malaysia Plan (11MP) for almost 15 years from 2006-2020.
Most policies equate B40 to poor households and the M40 to middle-class households or ‘aspirational households’. These demarcations might not be as accurate since the groups of households within the allotted ranges do not possess similar characteristics of consumption. 👀
The consumption pattern of the group in-between the B20 and the T30, what we term as the M50, appears to be relatively homogenous – in that households and are still experiencing trade-offs in their consumption of necessities and the more aspirational products. These households demonstrated minor differences from the B20 group.
Some households could eat out, and some started to send their children for tuition classes or could spend more on household furniture. This middle M50 is not the middle class and is still vulnerable.
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 original misconception of 60% (i.e. M40 plus T20 = Top 60)
Hence, KRI's findings challenge the existing B40, M40 and T20 classification that reveals discrepancies between income demarcations and actual expenditure patterns:
- Bottom 20% (B20)Households that are focused on meeting basic needs such as food, housing and clothing.
- Middle 50% (M50)Economically unstable households navigating trade-offs between essential and aspirational goods.
- Top 30% (T30)Households demonstrating aspirational consumption patterns indicative of the middle class, but not necessarily “wealthy” by global standards
Bearing all this in mind, these demarcations are not a proxy for distinguishing between the wealthy and the poor, the haves and have-nots. They are merely intended as a guide to show the differences that exist within a given society.
In other words, the demarcations do not differentiate between the rich and the poor, but rather simply who is richer and who is poorer; and it is a relative comparison.
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.
To read the full KRI's working paper, click here.
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