"They are intrinsically unmotivated, they lose a bit of an edge," Southgate told the Boarding Schools Association conference.
"We could pay players into trust funds or we could reduce the level," he said at the meeting in York.
"The biggest problem is that we reward boys without them having had success. We're taking some of that motivation away."
Southgate also believes the national teams suffers because of the unrealistic weight of public expectations.
He said the most recent senior squad was given a reality check, having made aware of England's far from impressive record at major tournaments over the last 25 years.
"We need belief, but realistic belief. What is possible? We're 14th in the world at the moment," he added.
"Whatever the hype around the Premier League, and whatever you read about yourself, there's a big world out there and some very good national teams.
(Reporting by Hardik Vyas in Bengaluru; Editing by Amlan Chakraborty)
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