Note that 先生 does not just mean “previous life”, but rather the first kanji can mean something along the lines of “earlier”, and the second kanji does not just mean “life” but also “living” or “birth” - which is exactly the etymology stated by @Kumirei .
(mdbg.net is really handy to have around by the way, just for occasionally comparing & contrasting Japanese words with their Chinese predecessors.)
In general, you can’t treat every kanji as representing one word, and then treat jukugo words as a combination of the words represented by their invididual parts - kanji meaning is more malleable than that, compound words are somewhat arbitrary in any language, and the rebus principle (Rebus - Wikipedia) applies.
The origin of 先生 was literally 自分より先に生まれたヒト(=年長者)に対する敬称です。So, I think the problem is just making an incorrect assumption about what 生 means in the compound.
And 世 isn’t always “generation” either. Most of the time it’s used to refer to “the world” or “society” or something like that. Thinking too hard about kanji meanings when learning vocab is detrimental in my opinion. It distracts you from actually learning the words.
I assume that this is a joke but just in case it’s not: everybody who is experienced at anything is previously unexperienced because everybody has been a baby at some point and the only thing babies are experienced in is being born (something that very few teachers teach).
As a Chinese speaker, I 100% validate @Kumirei’s explanation. That’s how I’ve always thought about it, and it makes tons of sense when you consider the near-unconditional respect for elders in traditional Chinese culture. It’s also kinda present in Japanese culture, no? Think back to promotions that are purely based on seniority, which used to exist (and probably still do) in many Japanese companies.
Just figured I’d help with one thing though…
前世(ぜんせ)is the right word (with that short-vowel reading) for ‘past life’. 前生(ぜんしょう)also exists with a similar meaning. However, both of these words tend to be used in a religious context in reference to reincarnation. Again, it’s a common theme in traditional Chinese culture and legends, which is how I know the words. For that matter, my current favourite Chinese love story – the authors are taking too long to upload new chapters! Argh! – involves a fox spirit who’s followed a man reincarnation after reincarnation, never giving up on him, so there’s no way I wouldn’t know the words. So much of the story involves flashbacks! (By the way, you’d say 妖(あやかし) or 妖怪(ようかい)for such spirits in Japanese, with 妖狐(ようこ)being the specific term for ‘fox spirits’.) If you want an example of a (modern) Japanese story in which the word 前世 is used… watch the anime ‘My Next Life as a Villainess’. It appears within the first two episodes, if I remember correctly. (「前世の記憶!」) There’s also ‘Fox Spirit Matchmaker’, a Chinese series which has been translated and dubbed in Japanese (I think it’s on Crunchyroll, for example), which very likely uses the word since it’s all about past lives.
More generally speaking, I think that in both Chinese and Japanese, 前 is a little more common than 先 for ‘previous’ or ‘the last’. 先 tends to reference a range of preceding objects, though it can sometimes refer to just one.