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Introduction
In recent times, there has been a surge of discussions around Malaysia’s income classifications, sparked by the 2025 budget announcement. The T15, or top 15%, has come under scrutiny, as policymakers and the public alike grapple with what “affluence” truly means in Malaysia.
This focus on the upper end of the income spectrum, however, raises an equally pressing question: what about the middle? The classifications we currently use—B40, M40, T20—creates a problem by focusing on two things:
- Giving the impression that these categories indicate the level of affluence on an absolute scale; that is, if you fall in the Top 20, for example, you must necessarily be well-off, and
- Forgoing differences that exist within each category which would allow better discussions regarding scales and targets.
And it is critically important to remember that the income spectrum merely reflects a macroscopic view of the distribution of household incomes, not wealth! The logic of the classification means that attributing wealth and income is dependent on the actual state of the country. So, for example, if you go to a country considered economically poor, one could even find that the gradation of the scale merely indicates between the extremely poor and the poor.
At the same time, we wish to suggest that following our calculations below using the “Expenditure Space,” the middle-income group in our country does not exhibit middle-class characteristics.
The Expenditure Space reveals characteristics of Middle-Class Consumption at T30
In our research, we developed the “Expenditure-Space,” a model that maps household spending from basic needs to aspirational items. We examine how consumption patterns evolve as households become richer. These spending patterns reflect not only economic status but also social aspirations and vulnerabilities.
The expenditure space exhibits a core-periphery structure. Products at the core are mainly basic necessities, while those in the periphery represent aspirational consumption. We have found that as income increases, the diversity of spending also grows—households consume more different products rather than merely consuming more of the same items.
However, our findings also reveal distinct patterns in middle-class consumption across Malaysia. From a consumption perspective, the bottom 20% (B20) primarily focus on basic needs, while the middle 50% (M50) navigate a complex spectrum of trade-offs. Interestingly, the top 30% (T30) exhibit characteristics more closely aligned with what we might consider middle-class, highlighting the limitations of our current classification system.
Discussion
Not all the B40 are poor by absolute standards
To identify households that are poor, Malaysia uses the Poverty Line Index (PLI). The PLI is an index of how much money a household (of varying sizes and attributes) would need to fulfill food requirements as proposed by the Ministry of Health’s Malaysian Dietary Guidelines (2020). Additionally, there is a non-food component that considers the monies required to acquire a set of basic non-food items. The PLI is an aggregation of these two sub-indices. Absolute poverty measures are useful for policymakers to identify, target, and prioritize those who lack basic necessities, starting from the most deprived household to the least. As of July 2023, the DOSM reports that absolute poverty stood at 6.2% and relative poverty at 16.6% of total households.
The Struggles of Middle-Income Households
Unlike middle-class households, middle-income households face tremendous financial difficulties. Middle-income households often face difficult trade-offs, choosing between immediate and longer-term needs. By mapping these decisions through expenditure patterns, our model reveals a middle-income group that is struggling, often stretching resources to meet present requirements, much less those in the future.
This sandwiched class is often overlooked in policymaking. They are not poor enough to qualify for government assistance but remain vulnerable to financial shocks. At the same time, they lack the disposable income to enjoy the aspirational consumption characteristic of the middle class, leaving them in a precarious economic position.
It is hard to operationalize the definition of ‘the rich’
At the other end of the spectrum presents a number of difficulties, especially when compared to the well-established benchmarks used to identify poverty. Poverty measurements often rely on clear, objective thresholds—like the national poverty line or basic needs indices—that are grounded in the simplicity of need. These benchmarks focus on whether individuals can secure fundamental necessities such as food, shelter, and healthcare. In contrast, affluence is a multifaceted concept that extends beyond income to include assets, investments, property ownership, and even social capital.
Defining affluence is inherently context-specific. In wealthier countries, affluence might imply owning luxury assets or significant financial investments. However, in lower-income nations, a household considered 'rich' might only have the means to secure what is deemed a decent living standard in that context. This relativity makes it even more challenging to establish a universal benchmark for identifying 'the rich.' This complexity of wealth makes it difficult to establish a universal standard for what constitutes being 'rich' in Malaysia.
Conclusions
In this analysis, we have shown that Malaysia’s current income classifications—B40, M40, T20—oversimplify the realities of household income and consumption. Our findings suggest that characteristics of a middle class emerge only in the top 30% of households, challenging the assumption that the T20 is uniformly affluent. Meanwhile, the middle-income households, despite their critical role in the economy, often find themselves excluded from both assistance and aspirational opportunities, leaving them vulnerable to financial instability.
