We need to close the income gap

- New Straits Time

By Dr Harintharavimal Balakrishnan - February 21, 2019 @ 10:57pm

The Department of Statistics’ Household Income and Basic Amenities survey showed that the mean
income of households in 2016 reached RM6,958, a 6.2 per cent annual appreciation from RM6,141 in
2014.

The incidence of poverty decreased from 0.6 per cent of the population in 2014 to 0.4 per cent in 2016.

Compared with the population of 30.7 million in 2014 and 31.7 million in 2016 (from the same portal), the
numbers also decreased from 184,200 to 126,800 from 2014 to 2016.

The 11th Malaysia Plan (2016–2020) Mid-Term Review released last October stated that the mean
household income is predicted to reach RM8,960 by 2020.

But these positive figures do not reflect the actual situation as there are reports that the bottom half of the
Middle 40 per cent (M40) and Bottom 40 per cent (B40) are barely making ends meet and struggling to
maintain a decent lifestyle.

Khazanah Research Institute’s (KRI) State of Households 2018 revealed a steady increase in the income
gaps between the Top 20 per cent (T20), M40 and B40 groups since the 1970s.

In 2000, the estimated real mean household income differences between T20 and M40, M40 and B40,
and T20 and B40, were RM6,000, RM2,000 and RM8,000 respectively.

By 2016, however, the figures had increased to RM9,000, RM4,000 and RM13,000.

These figures show that T20 households are gaining wealth at a faster rate compared with the rest.

Despite the improvement in mean household income figures, the gap between income groups continues
to rise.

It is well documented that the escalating cost of living has put financial pressure on the M40 and B40
groups.

With income growing at a slower pace compared with the cost of living, the M40 and B40 groups are
experiencing an abridged disposable income, which could be detrimental to future consumption, activity,
emergency or debt services.

Combining the data from the Department of Statistics’ Household Income survey (2016 and 2014) and
KRI household reports (with regards to population increase), it can be noted that the percentage of
households living under the 60 per cent median grew from 2014 to 2016 by 41.8 per cent to 43.5 per
cent, with an estimated 2.8 million households in 2014 and three million households in 2016.

The increase also suggests that more M40 households have fallen into the B40 category.

In the 11th Malaysian Plan (2016-2020), targeted subsidies, cash handouts, healthcare benefits,
education along with employment and entrepreneurship opportunities are the usual strategies to ease the
burden of B40 households.

Despite efforts for more than a decade, the statistics do not favour the case.
Aren’t we naively aiding B40 households at the expense of floundering M40 households?

We need to formulate plans to close the income gaps between the T20, M20 and B60 groups.

The financial management capability and financial literacy of the B40 is hard to change.

The availability of disposable income encourages more spending instead of investment and wealth
creation, the main principles of the T20 group.

It would be better to educate B40 households on financial literacy.

The introduction of financial management in schools is a good start.

Financial literacy should be given equal importance as language, science, mathematics and history.

Former United States president Abraham Lincoln said: “Give me six hours to chop down a tree and I will
spend the first four sharpening the axe.”

Why are we not sharpening our axe yet?

Dr Harintharavimal Balakrishnan