Malaysia’s new income classification and its impact on Gen Z
As a generation navigating the complexities of adulthood, financial independence and long-term aspirations, they are uniquely positioned at the crossroads of tradition and transformation.
L.R Turner23 Jan 2025 05:00pm

Photo for illustrative purposes only. - Canva
The Malaysian government is set to replace the current income classification system of B40 (bottom 40 per cent), M40 (middle 40 per cent), and T20 (top 20 per cent) with a more refined framework based on net disposable income.
This move aims to address socio-economic inequalities more effectively.
Economy Minister Rafizi Ramli announced that the shift will focus on better targeting subsidy recipients, starting with fuel subsidies such as RON95, to ensure fairer access to government assistance.
For Gen Z, this policy change presents both opportunities and challenges.
The government’s proposed net disposable income framework could be a game-changer. Unlike gross income, which doesn’t account for taxes, deductions or essential expenses, net disposable income provides a clearer picture of financial health.
This shift could open doors for young Malaysians, particularly those just starting their careers to qualify for subsidies and assistance programmes that were previously out of reach.
Under the current system, household gross income determines subsidy eligibility, often excluding young Malaysians who may appear financially stable on paper but face real challenges like high student debt, rent and rising living costs.
The new system could change that. By focusing on disposable income, Gen Z’s financial struggles may finally be acknowledged, granting them access to much-needed government support.
For instance, the reworked RON95 fuel subsidies could offer relief to young workers who rely on personal vehicles to commute. However, this system is not without complications.
Gen Z individuals who live with family or receive financial support from parents might find their household’s disposable income exceeding the eligibility threshold, even if their personal finances remain tight.
The reclassification is also set to challenge long-standing perceptions of the middle class.
A report by the Khazanah Research Institute (KRI) argues that only the top 30 per cent of Malaysian households qualify as truly middle-income, contrasting sharply with the government’s broader definition that includes both the M40 and T20 groups.
For Gen Z, this redefinition could shift their understanding of financial success.
Aspirations like owning a home or car, long regarded as milestones of middle-class achievement, may become increasingly difficult to attain in an era of recalibrated classifications.
At the same time, clearer definitions of income groups could help Gen Z better understand their financial standing and the resources available to them.
Rafizi also highlighted the critical role of technology and data infrastructure in implementing this new system, particularly through the Central Database Hub, Padu.
This tech-driven approach aims to enable a more granular, person-by-person classification.
For digitally savvy Gen Z, such innovations could feel natural and transparent, aligning with their comfort in navigating online platforms.
Still, lingering questions about data privacy, accuracy and system agility remain.
Will the Padu system effectively capture the nuanced financial realities of individuals?
And will it adapt quickly enough to the rapidly evolving economic environment Gen Z inhabits?
The stakes are high, especially as living costs in Malaysia continue to rise, particularly in urban areas where many young people reside.
The new classification system could help ease some of the financial strain by ensuring subsidies reach those who need them most.
For Gen Z, this could mean more breathing room in their budgets for essentials like rent, groceries and transportation—expenses that often consume a significant portion of their disposable income.
Despite financial pressures, Gen Z is known for their desire to balance financial stability with personal fulfilment.
According to Etiqa’s Gen Z Financial Health Survey, 36 per cent of Malaysian Gen Z prioritise spending on personal hobbies, and 50 per cent cite travel as a key life aspiration.
If the new system succeeds in alleviating financial stress, it could allow them to redirect resources towards these passions and goals.
However, with net disposable income replacing gross income as the benchmark, Gen Z may need to recalibrate their financial priorities.
Traditional milestones like homeownership or car ownership could take a back seat to more immediate concerns, such as building savings and achieving work-life balance.
As Malaysia transitions to this new system, its success will depend on whether it can truly reflect the financial realities of young Malaysians while addressing the inequalities that have long plagued the current classification model.
For Gen Z, the stakes couldn’t be higher—but with change comes the potential for a more equitable future.
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