M50, not M40? Why those sandwiched between the haves and have-nots aren’t actually the middle-class in Malaysia

KUALA LUMPUR, Jan 1 — Is the end finally near for Malaysia’s classification of households based on their income — dividing them into the bottom 40 per cent (B40), middle 40 per cent, (M40) and top 20 per cent (T20)?

Khazanah Research Institute (KRI) is the latest to suggest a more accurate representation of Malaysians’ economic status, proposing instead to delineate the population into B20, M50, and T30.

In its working paper titled “Searching for the ‘Poor’ and the ‘Middle-Class’ in Malaysia”, KRI said it used a model that examined the products consumed by Malaysian households and also their revealed preferences by tracing their spending habits — from basic needs to complex goods and services.

It said its findings over a decade showed that the three groups can be discerned as:

• B20 — focused on fulfilling basic needs, such as food, housing, and clothing
• M50 — economically vulnerable, experiencing trade-offs between essential and aspirational expenditures
• T30 — exhibit middle-class spending patterns

Is the M40 — or M50 — actually the ‘middle-class’ in Malaysia?

KRI proposed no, saying that while the group is sandwiched between the B20 and T30, they do not exhibit the same spending patterns as a “middle-class”.

Not only that, they also remain economically vulnerable.

According to KRI, the “middle-class” should be households that could purchase vast necessities, demonstrate aspirational consumption of non-essential items, and exhibit economic stability.

However, the M50 were “still experiencing trade-offs in well-being and living standards” despite having more expenses than the B20 group on non-food, non-clothing, and non-housing items, which were still essential but indicated a slightly higher standard of living.

The spending patterns between the M50 and B20 also rarely differ.

For example, one difference was merely how some M50 households could afford to send their children to tuition classes and begin purchasing more household furniture.

Meanwhile, the B20 mostly spent on basic items such as food, clothing, rent and others, the report noted.

It found that the B20 could only afford basic necessities like food, clothing, rent and others.

Then who are the real ‘middle-class’?

Instead, KRI said those who could splurge on what the report described as “middle class” expenditures are mostly in the T30.

The T30 group had more diversified spending — a substantial portion of their budget was dedicated to household equipment and utensils, including items like air conditioning, washing machines, furniture, furnishings, and the acquisition of domestic help services.

In addition to motor vehicles, the T30 also utilised air travel.

The institute also noted that the T30 group increased their healthcare expenditure by being able to afford dental care, pharmaceutical or medical products, private healthcare, and paramedical services.

“Dining out, miscellaneous items such as jewellery and watches, and investments in insurance and social protection also formed essential components of their expenditure profile, underscoring their commitment to a well-rounded and secure lifestyle.

“These households consistently desired higher-quality and often more luxurious goods and services, reflecting their greater economic capacity and preferences for an enhanced quality of life.

“Notably, their expenses on food decreased in dominance, while their spending on clothing remained relatively modest. These households favoured clothing cleaning services including laundry services and the rental of clothing items,” the report read.

The report also found that the T30 group could afford spendings such as entertainment, television, photography equipment, musical instruments, sports gear, gardening, cultural activities, gambling, and packaged tours.

Earlier this month, Economy Minister Rafizi Ramli said proposals related to the definition and classification of the T15 income group are being refined and will be decided by the Cabinet soon.

This came after Prime Minister Datuk Seri Anwar Ibrahim announced in Budget 2025 to withdraw fuel, education, and health subsidies for the T15 group.

The Department of Statistics Malaysia had in November published its first Cost of Living Indicators report for 2023, revealing crucial data on the basic expenditure required for a decent standard of living.

The report included the Cost of Living Index, and a new Basic Expenditure of Decent Living (PAKW) — which is analysed based on demographic details which include household characteristics, household size as well as location.