Shrinking Middle: Assessing financial vulnerability among malaysia’s M40 households

Abstract

Malaysia’s M40 group, traditionally viewed as economically stable, is increasingly vulnerable to financial pressures due to rising living costs, high household debt, and stagnant real wage growth. This paper examines the structural, behavioural, and policy-related determinants of M40 financial fragility by integrating household finance theory, behavioural economics, and the financial resilience framework. A conceptual model is proposed linking economic pressure, financial behaviour, resilience, and policy support. The findings highlight the growing risk of downward mobility among M40 households and emphasise the need for targeted social protection, behaviour-oriented financial literacy, and stronger institutional reforms to protect Malaysia’s shrinking middle class.