Abstract

Understanding the drivers behind household spending is essential for crafting effective economic policies. This paper addresses gaps in the literature by investigating the factors influencing total household expenditure in Malaysia using data from the Household Income and Expenditure Survey (HIES), conducted in 2022 by the Department of Statistics Malaysia (DOSM). Analysing data from more than 55 thousand households, we identified key predictors of household expenditure: gross income, geographic location, urban-rural strata, gender, ethnicity, household size, number of children, disabled persons, and senior citizens. The primary goal was to develop a model to predict household expenditure using multiple linear regression. We log-transformed both income and expenditure data for statistical validity and improved interpretability due to non-normal distributions. The results show a strong correlation between household income and expenditure (r = 0.8556) and highlight significant disparities based on location, gender, and ethnicity. This paper offers a practical tool for policymakers, economists, and researchers to analyse household spending and support targeted economic interventions and informed decision-making. The findings emphasise the need for tailored policy measures to address the diverse financial behaviours of households, contributing to economic stability and growth. Additionally, we created a user-friendly calculator based on the model to simplify the estimation and analysis of household spending trends, which also can aid local governments and NGOs in designing community-specific programs. The study underscores the importance of continuous data collection and analysis to keep pace with changing economic conditions and demographic shifts, allowing policymakers to stay ahead of emerging trends and challenges. Overall, this paper significantly contributes to understanding the Malaysian economy and social landscape. It provides insights into the interaction between income, demographics, location, and household spending behaviours, informing better policy design and decision-making. The comprehensive nature of this paper ensures that the findings are robust and applicable to various policy and economic contexts, making it a valuable resource for future economic planning and development initiatives.