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Understanding the Terms – T20, M40 and B40

25/Oct/2019


The T20, M40 And B40 Income Classifications in Malaysia

Malaysians are categorised into three different income groups - Top 20% (T20), Middle 40% (M40), and Bottom 40% (B40). Over the years, the bar for each group has increased and this is one of the indicators of economic growth. The following is the latest definition for T20, M40 and B40 based on the findings from the Department of Statistics Malaysia in October 2017.

To be in the T20 group, a household needs to earn at least RM13,148 while M40 and B40 groups have moved their bars up to RM6,275 and RM3,000 respectively. The Department has also released a report in 2016 on Household Income And Basic Amenities Survey which stated that the median household income for T20, M40 and B40 has shown a compound annual growth rate (CAGR) of more than 6%.

On top of that, Malaysia’s household median monthly income crossed the RM5,000 mark for the first time in 2017, with M40 households registering the highest growth in median income, according to the Department.

Bear in mind that the income group definitions are not fixed. The names or rather groups represent percentages of the countries’ population in accordance with the three categories. The values may increase or decrease year-to-year, depending on the country’s GDP, which is why the median household income is used as the determinant instead.

What is a Median Household Income?

A median household income is the middle income number within a range of income from low to high. For example, in a housing area, there are five household incomes of RM5,000, RM10,000, RM15,000, RM20,000, and RM25,000; the median household income will be RM15,000. The median is used because it represents a more accurate representation of the area than a mean number (the average).

* New Median Income of T20, M40 and B40

Median Monthly Income by Household Groups

Household Group

Median Income 2016 (RM)

Median Income 2014 (RM)

CAGR (%)

T20

13,148

11,610

6.2

M40

6,275

5,465

6.9

B40

3,000

2,629

6.6

 

Even though the income levels for each group have improved over the past three years, we should not ignore the escalating costs of living resulting from inflation and slower wage growth. To be exact, if we include inflation into the picture (3.15%, 2.1%, 2.09%, and 4.1% respectively in 2014, 2015, 2016, and the first half of 2017), the RM’s value is diminishing.

It was reported that the average monthly income of employees, based on the Department’s Salaries and Wages Survey Report 2016, has increased by 6.5% to RM2,463. In 2015, it rose 5.4% to RM2,312. However, this optimistic income growth seems to be only applicable to those who are working in Kuala Lumpur or within the vicinity, whereas other states are still struggling to stay on track to achieve similar income levels.

* Median Income Level for Each State

Median Income for a Household in Different States in Malaysia

State

Median Income 2016 (RM)

Median Income 2014 (RM)

W.P. Kuala Lumpur

9,073

7,620

W.P.Putrajaya

8,275

7,512

Selangor

7,225

6,214

W.P. Labuan

5,928

5,684

Johor

5,652

5,197

Melaka

5,588

5,029

Pulau Pinang

5,409

4,702

Terengganu

4,694

3,777

Negeri Sembilan

4,579

4,128

Perlis

4,204

3,500

Sarawak

4,163

3,778

Sabah

4,110

3,745

Perak

4,006

3,451

Pahang

3,979

3,389

Kedah

3,811

3,451

Kelantan

3,079

2,716

 

Interestingly, based on the chart you can see that Pulau Pinang’s median income level is placed in the middle among its peers despite being the second highest performing state in the country with GDP per capita of RM47,322 after Kuala Lumpur at RM101,420.  It was reported that factories have been closing down in this particular state and employment opportunities are still relatively lower compared with Selangor and Putrajaya, given the latter’s closer proximity to the city filled with better job opportunities.

Apart from Kuala Lumpur, Selangor, and Putrajaya; Pulau Pinang and the remaining 12 states’ median income level did not exceed the median income level for the M40 group in Malaysia. This means the rest still have a gap to close in order to improve the income gap between urban and rural areas. Nonetheless, it is satisfying to see the huge jump in both Terengganu and Perak state’s median income level from 2014, most likely thanks to a boost in the tourism sector.

* Districts with the Highest Median Household Income in 2016

Top 20 Districts with the Highest Median Household Income

District

Median Income 2016 (RM)

Sepang

8,174

Petaling Jaya

7,904

Gombak

7,903

Hulu Langat

7,851

Klang

6,724

Johor Bahru

6,518

Kulai

6,114

Terengganu

4,694

Bintulu

5,966

Timur Laut (Pulau Pinang)

5,964

Melaka Tengah

5,877

Barat Daya (Pulau Pinang)

5,844

Kota Kinabalu

5,683

Batu Pahat

5,516

Hulu Selangor

5,421

Muar

5,371

Kemaman

5,355

Kuala Langat

5,293

Penampang

5,211

Miri

5,208

Sungai Petani Tengah

5,172


Knowing Your Financial Background

Now that most of us are aware of the median income in different states and some districts, we should be able to find out if our financial position is better or worse than the average Malaysians. Making financial decisions are not easy, but always remember to spend wisely.

Without a doubt, more and more Malaysians are concerned about our financial condition. Many including millennials are finding it hard to keep up given the rising costs of living. Whether it is saving, investing, insurance, or managing money, the financial health status of an average Malaysian highly depends on these fundamentals.

According to a few news reports in early 2018, there were a total of 300,958 bankruptcy cases in the country in 2017, up 10,957 from the 290,001 cases a year earlier. This is despite the amendments to the insolvency law to help reduce the number. Malaysians are currently embroiled in bankruptcy cases mainly due to defaulted personal, housing and car loans.

Approximately, 60% of the country’s bankrupts are aged between 35-54 years old. The remaining number of bankruptcy cases involve those between 21-34 years of age. That’s quite alarming to know that the number of young Malaysians getting into financial trouble is high! Therefore, it is even more important for you to know if you are on the right track to achieve financial freedom or off track to endless financial pit hole.

Essential Expenses

According to the Department, the low income group in Malaysia or B40 spends almost 80% of household income on routine essential expenses whereas T20 and M40 spend about 64% and 48% respectively. The gap between household income and expenditure of B40 shows the cost of living is high and there is limited room for future savings.

Consumer price index data shows 30% of average Malaysian’s expenditure is on foods and non-alcoholic beverages. Those living in rural areas and income group below RM3,000 spend almost 40% on foods. The pressure felt by T20 and M40 is less than the B40 due to income level. Increase in price has less impact on the consumption pattern of the rich. On the other hand, the poor feel the pinch even with a slight increase in price. Those with high income have more room to cushion the higher food prices.

Price movements of basic goods affect the low-income group more than those in the higher-income bracket. Thus, a slight drop in prices of basic goods will see demand from low-income consumers increase and vice versa. What should be done then?

For the government, to continue giving subsidies for long term is economically inefficient. It is akin to spoon-feeding. Subsidy provision is not sustainable for long term as it could stifle productivity and lead recipients to become over-dependent on the subsidy. The funds spent on subsidies could be used productively, such as building roads, schools, hospitals, providing scholarships and on programs to expand the economy.

The disadvantage of subsidy provision is deadweight loss to the economy where inefficient allocation of resources occur. For example, with the subsidy rationalization plan, the cut in cooking oil subsidy, can be used on improving productivity in cooking oil production activities in particular or improving overall productivity in general. For instance, to invest in productive infrastructure such as machinery and employing technology to lower the production cost. Lowering the price of cooking oil by cutting production cost is much more efficient than subsidy.

Nevertheless, subsidy rationalization is a good move for the long term economic development. Prior to that, a smooth transition from controlled-price system to free market system should be put in place. It is better to have stable economic growth coupled with healthier economic development by ensuring market stability, income equality and wealth distributions as well as affordable cost of living.

Gearing for Higher Household Income

Ultimately, by uplifting the income and earning power of the B40 is one way to alleviate pressures from cost of living. The transition towards free market must be balanced or compensated by higher household income. Bantuan Sara Hidup (BSH) is not an impactful tool to compensate the low income group with the rising cost of living. BSH is a one-off transfer payment given once a year and the effect is temporary at most.

Apart from BSH or one-off payment, monthly cash transfer even with smaller value may assist the B40 to adapt with the increased in cost of living in the short term. For the medium and long terms, the government should gradually increase national minimum wage and human capital development via education and skills enhancement.  

The government needs to present new initiatives and incentives that are able to provide relief for the people. By strengthening the national economy and stimulating growth, coupled with a government policy that is inclusive, fair and balanced, it will go a long way in helping the rakyats to lead a sustainable and meaningful life.

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