Stein an haife shi ne ga Nathan Stein da Anna Hirschler, ma'aurata Yahudawa da ke zaune a Budapest a cikin Daular Austro-Hungary. Iyayensa da 'yar'uwarsa sun riƙe bangaskiyarsu ta Yahudawa amma Stein da ɗan'uwansa, Ernst Eduard, an yi musu baftisma a matsayin Lutherans, a fili don 'yantar da su daga antisemitism wanda zai hana su samun ilimi da ci gaba. A gida, iyalin suna magana da Jamusanci da Hungary, harshen harshen farkawa na kasa na Hungary a karni na 19, kuma Stein ya yi alfahari da wannan al'adun har tsawon rayuwarsa. Ya halarci makarantun motsa jiki na Katolika da Lutheran a Budapest, inda ya ƙware da Girkanci, Latin, Faransanci, da Ingilishi kafin ya ci gaba da karatu a Jami'o'in Vienna, Leipzig da Tübingen. Ya yi karatu a Sanskrit da Faransanci da kuma Ph.D. daga 1883 zuwa 1884. Daga baya ya tafi Lahore zuwa Steiningen da ɗan'uwansa, Ernst Eduard, a matsayin Lutheran, a fili don 'yantar da su daga antisemitism wanda zai hana su samun
Helenanci, Latin, Faransanci, da Turanci