Financial Freedom Fiesta: Trends, Tips, and Voices from 2014 to 2024
Have you ever dreamed of financial freedom? The kind where you can sip piña coladas on a beach while your money works tirelessly for you? Well, that’s my dream too! To achieve it, I’ve immersed myself in all things financial, learning everything I can about the practices that help individuals make more money. But personal finance is just one piece of the puzzle — we’re all part of a bigger economic picture, influenced by the financial waves around us.
In a world where financial freedom means having the power to control your economic destiny, some countries are making strides while others lag. According to the Heritage Foundation, financial freedom is not just about wealth — it’s about the right policies, government integrity, and economic environment that empower individuals and businesses to thrive. Economic freedom involves more than just the ability to buy and sell products and services. It allows us to be free in our interactions with others, enabling us to travel, speak our minds, and pursue our dreams.
Professor Antony Davies highlights how economic freedom correlates with several positive indicators of a healthy society. Countries with higher economic freedom tend to have higher GDP per capita, better environmental care, greater gender equality, and less child labor. In essence, economic freedom is about being free to make your own choices, which is fundamental to a healthy and prosperous society.
With this in mind, let’s dive into the financial freedom landscape from 2014 to 2024. Join me on a journey through financial freedom around the globe, using data from Heritage. We’ll uncover the top free and least free countries in 2024, Find what makes counties free financially, track financial freedom over the past decade, predict future trends, and even cluster countries based on their financial freedom scores. But wait, there’s more! We’ll also dive into people’s reactions to Professor Antony Davies's video about financial freedom, adding a splash of real-world sentiment to our analysis. Buckle up — it’s going to be a fun and enlightening ride!
Data Cleaning Process
To ensure our analysis is as accurate as possible, I undertook a rigorous data-cleaning process. Here’s what I did:
- Filling Null Values: For each country, I calculated the mean for each column to fill in the missing values. This helps maintain the integrity of the data without skewing the results.
- Removing Incomplete Entries: I had to remove countries with no values at all to ensure our study remains robust and meaningful. This step was crucial to avoid any misleading conclusions based on incomplete data.
What Makes a Country Financially Free? Understanding the Key Factors
When we talk about financial freedom, we’re diving into a complex web of factors that interact in fascinating ways. Our correlation heatmap and bar chart shed light on which factors are the biggest influencers of a country’s overall financial freedom score. Let’s break it down.
Positive Relationships
· Judicial Effectiveness and Government Integrity (0.88): These two factors go hand in hand. Countries with high government integrity typically have effective judicial systems, ensuring laws are enforced fairly.
· Trade Freedom and Investment Freedom (0.64): Countries that promote free trade often attract more investment. Free trade policies create a vibrant marketplace where goods and capital move fluidly, generating economic growth.
· Business Freedom and Property Rights (0.73): When businesses feel their assets are safe, they are more likely to thrive and innovate.
Surprising Twists
1. Government Spending and Financial Freedom (-0.18): Higher government spending doesn’t always translate to better financial freedom. Excessive spending can lead to inefficiencies and reduced economic liberty, much like too many cooks in the kitchen spoiling the broth.
2. Tax Burden and Other Indicators: Tax burden shows mixed correlations. While it’s positively correlated with fiscal health (0.43), indicating well-managed government finances, it negatively impacts business freedom (-0.25). This highlights the balancing act governments must perform between collecting revenue and fostering a business-friendly environment.
You can easily read the relation between the factors from this Dendrogram chart of the factors based on the Correlation.
As most of our study is using the Overall score for financial freedom we will take a deeper look at the factors of financial freedom
Top Influencers of Financial Freedom overall score
1. Business Freedom (0.81): Countries where it’s easy to start, operate, and close a business tend to score high in financial freedom
2. Financial Freedom (0.80): The freedom to manage financial assets without excessive government interference is crucial.
3. Property Rights (0.80): Secure property rights are fundamental. When people know their property is safe from arbitrary seizure, they invest more confidently.
4. Investment Freedom (0.78): The ability to freely invest across borders without heavy restrictions is vital.
5. Government Integrity (0.77): High government integrity, meaning low corruption and high transparency, builds trust in the economic system.
6. Judicial Effectiveness (0.73): Countries with strong judicial effectiveness tend to have better protection of economic rights.
7. Trade Freedom (0.65): Free trade policies create a dynamic marketplace, promoting economic growth and diversification.
8. Monetary Freedom (0.59): Monetary stability encourages savings and investments.
9. Labor Freedom (0.52): This adaptability is crucial for a dynamic labor market.
Lower or Negative Influencers
1. Fiscal Health (0.27): While positively correlated, the weaker correlation indicates that while fiscal health is important
2. Tax Burden (0.15): excessive tax burdens can hinder business operations and economic freedom.
3. Government Spending (-0.18): The negative correlation indicates that higher government spending does not necessarily translate to better financial freedom.
The bottom line
To boost financial freedom, countries should focus on enhancing business freedom, securing property rights, and maintaining government integrity. Balancing tax policies and government spending is also crucial to foster a healthy economic environment. By understanding these relationships, policymakers can create environments where both businesses and individuals thrive, paving the way for greater overall financial freedom.
Global Distribution of Financial Freedom Scores in 2024
Now, let’s fast-forward to 2024, where we unveil the financial freedom champions and the… well, not-so-champions.
This map provides a global overview of financial freedom scores for the year 2024. The color gradient from red to blue represents the range of scores, with red indicating lower financial freedom and blue indicating higher financial freedom.
The map vividly illustrates the diverse landscape of financial freedom across the globe in 2024. High-scoring countries continue to set examples with their strong economic policies and governance while lower-scoring nations face significant hurdles that limit their economic freedom. This visual tool underscores the importance of policies that promote transparency, protect property rights, and reduce government intervention to enhance financial freedom worldwide.
The Top Free Countries
Topping the charts of financial freedom in 2024 are countries that have mastered the art of economic liberty. These nations are the envy of the world, boasting policies that make it easy for businesses to thrive and for citizens to enjoy the fruits of their labor. Here are the star performers:
1. Singapore: This little island nation packs a punch, consistently leading the pack with its robust financial infrastructure and business-friendly policies. It’s like the financial freedom equivalent of winning the Olympics — every year!
2. Switzerland: Known for its neutrality and stunning alpine views, Switzerland is also a heavyweight champion in financial freedom. Their secret? A strong banking sector and minimal government intervention. Cheese and chocolates aren’t the only things they excel at!
3. Ireland: The Emerald Isle has been a dark horse, rising through the ranks with a dynamic and open economy. With a mix of tech giants and vibrant startups, Ireland proves that good things come in small packages.
The Least Free Countries
On the flip side, we have the countries struggling to break free from financial constraints. Imagine a heavy anchor dragging them down in the sea of economic woes. Here are the nations that need a bit of financial TLC:
1. Cuba: Despite some recent economic reforms, Cuba still finds itself on the low end of the financial freedom spectrum. With heavy state intervention, the island’s economy struggles to stay afloat.
2. Venezuela: No surprises here. Venezuela’s economic policies have been akin to a rollercoaster ride — one that unfortunately plunges more than it climbs. With hyperinflation and stringent controls, financial freedom is but a distant dream.
3. Sudan: Political instability and heavy government intervention have kept Sudan at the bottom of the financial freedom rankings.
How Has the Average Overall Score of Financial Freedom Changed from 2014 to 2024?
Let’s take a visual journey through the financial freedom landscape from 2014 to 2024. Picture this: a vibrant bar chart, each bar a snapshot of the average financial freedom score for that year. The colors tell the story — darker shades mean higher scores and lighter shades signal a dip in freedom.
Key Point
Key Points
1. Highest Scores:
- 2020 and 2021 were the golden years! With average scores peaking around 61.6, these years showcased relatively high levels of financial freedom globally. Think of it as the financial freedom equivalent of a booming summer festival. Surprisingly, this golden era occurred during the COVID-19 pandemic, a time of global uncertainty and upheaval. It seems that even amidst lockdowns and economic disruptions, certain financial freedoms flourished.
2. Stable Period (2014–2021):
- From 2014 to 2021, the financial freedom train chugged along smoothly with average scores consistently above 60. This period reflects a stable era, much like a well-oiled machine running without a hitch. The global economy enjoyed relative stability and growth, setting a strong foundation for financial freedom.
3. Decline (2022–2024):
- Then came the plot twist. Starting in 2022, we see a noticeable decline. The score drops to 60 and continues its downward journey in 2023 and 2024.
- By 2024, the average score will hit a low of 58.6. It’s like our financial freedom train encountered some rough tracks, suggesting increased financial restrictions or global economic challenges. Factors such as rising geopolitical tensions, inflation, and policy shifts may have contributed to this downward trend.
Finding the best model to predict the Overall score for financial freedom.
To identify the best model for predicting the overall financial freedom score, I applied multiple regression models and calculated the Mean Squared Error (MSE) for each one. The models used in this analysis are:
- Linear Regression
- Ridge Regression
- Lasso Regression
- Random Forest Regression
- Gradient Boosting Regression
- Neural Network Regression
The chart below compares the MSE values for each of these models, allowing us to evaluate their performance and select the most suitable model for predicting financial freedom scores. Lower MSE values indicate better predictive accuracy, and thus, the model with the lowest MSE is considered the best for this task.
Ridge Regression:
Model Performance Metrics
- The scatter plot shows that most blue dots are very close to the red dashed line, indicating that the Ridge Regression model predictions are very close to the actual values. This suggests an excellent fit.
- The MSE value of 1.34 is very low, which confirms that the predictions are highly accurate on average.
- The R² value of 0.99 indicates that the model explains 99% of the variance in the financial freedom scores, which is exceptionally high.
Clustering Countries: Discovering Patterns in Financial Freedom
To unravel the complexities of financial freedom across the globe, we embarked on a journey of clustering countries based on key economic indicators. Here’s a fun and engaging explanation of what we did:
Principal Component Analysis (PCA)
I employed PCA to reduce the dimensionality of our data. This step helped me visualize the data in a 2D space, making it easier to identify patterns.
Determining Optimal Clusters
I used the Elbow Method to find the optimal number of clusters. By plotting the inertia (a measure of clustering quality) against the number of clusters, This guided us to choose 4 clusters.
Clustering with K-Means
We performed K-Means clustering with 4 clusters, effectively grouping countries into four distinct categories based on their economic characteristics. Each cluster represents a unique financial freedom profile, highlighting similarities and differences among countries.
Model Evaluation
1. Silhouette Score: 0.407
- This score suggests that our clusters are fairly distinct, with countries within the same cluster sharing similar financial traits.
2. Davies-Bouldin Index: 0.782
- A low value indicating that the clusters are well-separated and compact, highlighting the distinct financial freedom profiles of different clusters.
Visualizing the Clusters
To bring our clusters to life, we created a vibrant scatter plot using the BuPu color scheme. Each point represents a country, colored by its cluster assignment. The result is a beautiful visual map of the world’s financial freedom landscape, with distinct groups of countries sharing similar economic traits.
what we can see
- Cluster 1 (Darkest Shade): These countries boast the highest levels of financial freedom, excelling in property rights, business freedom, and government integrity.
- Cluster 2: Nations in this group enjoy significant financial freedom but may have room for improvement in one or two key areas.
- Cluster 3: These countries are in the middle of the pack, with balanced economic policies but lacking the high scores of the top clusters.
- Cluster 4 (Lightest Shade): Countries in this cluster face the most challenges, often struggling with high government intervention and weaker economic policies.
Analyzing Public Sentiment on Financial Freedom
To add a real-world touch to our exploration of financial freedom, we turned to sentiment analysis of public reactions to a video discussing this topic.
Data Collection and Preparation
Using Python and various data scraping techniques, we gathered comments from a popular video discussing financial freedom. The data was then cleaned to remove any irrelevant information, such as special characters and non-English text, ensuring that our analysis focused solely on meaningful content.
Overall Sentiment Distribution:
- The majority of comments were positive, reflecting an optimistic outlook towards financial freedom.
- A significant number of comments were neutral, indicating informative or factual statements without strong emotional tones.
- There were also negative comments, providing critical perspectives on the challenges and barriers to achieving financial freedom.
- Subjectivity Sentiment Analysis:
- The majority of comments were subjective (opinions), indicating that viewers were more inclined to share personal thoughts and experiences regarding financial freedom.
Topic Analysis:
- Personal beliefs dominated the comment sections, followed by critical perspectives and policy discussions. This indicates a high level of engagement and personal investment in the topic
Polarity Distribution by Topic:
Most comments, regardless of the topic, leaned towards a positive sentiment, especially in personal beliefs. Critical perspectives and policy discussions also had a notable amount of positive comments but included more neutral and negative sentiment
Network Analysis of Topics:
- This network graph shows the interconnection between different topics. Personal beliefs are most densely connected, indicating a strong central theme in the discussions.
The sentiment analysis provided valuable insights into public perceptions of financial freedom. The overwhelming positive sentiment suggests that many people are hopeful and motivated to achieve financial independence. However, the presence of negative comments highlights the ongoing challenges and barriers that need to be addressed.
The Beach Vibe
As we imagine ourselves sipping a piña colada on a beautiful beach, let’s remember that financial freedom is about more than just money. It’s about creating opportunities, ensuring fairness, and empowering people to live their best lives. By understanding the trends, key indicators, and public sentiments, we can better navigate the path to financial freedom and make informed decisions that benefit everyone.
Resources :
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