Jakarta. Taxes, fuel prices, and inflation are squeezing Indonesia's middle class, weakening their purchasing power and pushing many closer to poverty. However, increasing financial literacy could serve as a crucial lifeline for the struggling middle class.

Nailul Huda, Director of the Digital Economy at the Center of Economic and Law Studies (CELIOS), highlighted the challenges faced by the middle class, including inadequate government policies that have not fully supported their growth.

"The middle class is squeezed by rising value-added tax (VAT), fuel prices, and inflation, weakening their purchasing power," Huda explained during a discussion titled "Investment Strategies to Overcome Middle-Class Decline in an Uncertain Era" in Jakarta on Monday.

He noted that while the middle class has not yet fallen into poverty, they are now at risk. Huda suggested the government should offer more economic relief by maintaining subsidies and delaying further tax hikes.

“The middle class is not progressing, nor are they sinking into poverty; instead, they are becoming more vulnerable. During the Covid-19 pandemic, social assistance was mostly directed at the poor, while the middle class struggled to maintain their income,” Huda said.

Middle-class income growth, at just around 1.5 percent, lags behind the rising cost of goods, forcing many families to dip into their savings to maintain their lifestyles. Huda advised the government to postpone further VAT increases and maintain subsidies to allow the middle-class time to recover financially.

A report from the Central Statistics Agency (BPS) revealed a sharp decline in Indonesia’s middle class, from 57.33 million in 2019 to 47.85 million in 2024, while the "aspiring middle class," those vulnerable to poverty, surged to 137.5 million people.

Huda also emphasized the growing importance of financial literacy and investment awareness, as many people are still falling prey to high-return promises without understanding the risks. He encouraged the public to seek investment knowledge to navigate the economic challenges.

“Despite rising interest in investment, many are still drawn to schemes that promise large profits without comprehending the risks. It’s crucial that people understand the basics of investment and actively seek out financial knowledge through available platforms,” he said.

On a positive note, financial literacy in Indonesia is improving. The latest National Survey on Financial Literacy and Inclusion (SNLIK) by the Financial Services Authority (OJK) and BPS shows that financial literacy has grown from 38.03 percent in 2019 to 65.43 percent in 2024, signaling hope for the middle class in facing economic pressures.

Benny Sufami, Co-Founder of Tumbuh Makna, viewed this development as an opportunity for the middle class to become more financially savvy. In the face of rising prices and interest rates, he stressed that better financial knowledge enables people to make smarter financial decisions and avoid risky traps like illegal loans or impulsive choices.

“This rise in financial literacy gives hope. The middle class now has the tools to manage their finances effectively, create budgets, and choose investments that match their risk profiles,” Benny explained.

He also urged caution in selecting investment vehicles. “In these challenging times, the middle class must be more selective. Investments like retail bonds can be a safe and profitable option, especially amid inflation fluctuations. With affordable capital, people can start investing and protect their finances from economic pressures,” he added.

Benny expressed optimism that a planned interest rate cut in 2025 will provide further support for businesses and the middle class. “Lower interest rates will give businesses room to grow. With increased financial literacy, I am confident the middle class will be better equipped to seize new economic opportunities,” he said.

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