Kurt was born to Jewish parents in the city of Aachen, where his mother's family had resided since the 18th century. His father, though trained as a chef, worked as a butcher and also managed several stores for his father-in-law. The Paulys lived over one of those shops in the nearby suburb of Eilendorf. Kurt enjoyed large family gatherings, where he would play with his cousins, Anne and Margot Frank.
1933–39: When the Nazis came to power in 1933, the situation drastically changed for the Paulys. Brown-shirted storm troopers stood in front of the family's stores urging customers to boycott Jewish businesses. Worsening conditions forced the family to close its shops. In 1936 the Paulys immigrated to Palestine, where Kurt's father had a trucking business. Two years later, the family came to the United States, after receiving affidavits of financial support from friends. They settled in Cincinnati, Ohio, a city with a large German population.
1940–45: In Cincinnati, Kurt attended school and his father found work in a cafeteria peeling potatoes and onions. Later, Kurt's father became a chef at a local restaurant. As the war in Europe escalated, Kurt's parents grew ever more concerned about the family that they had to leave behind in Germany. His father had hoped to bring more of his relatives to the United States. In fall 1941, the Nazis prohibited Jews from leaving Germany and soon began deporting them to ghettos and killing centers in occupied eastern Europe.
After the war, Kurt learned that some of his closest relatives in Germany had perished in the Holocaust. In 1948 the Paulys moved to Vineland, New Jersey, where they bought a chicken farm. After serving in the U.S. Army during the Korean War, Kurt went on to graduate with honors from the University of Pennsylvania's Wharton School of Business.