Jailing one young criminal costs the taxpayer as much as £140,000 a year, a report has said.
Locking up young offenders also makes them more likely to commit further crimes and be unemployed later in life, the New Economics Foundation said.
The think-tank called for drastic cuts in the use of youth custody.
Budgets for youth custody should be given to councils and the money reinvested in rehabilitation programmes, the report said.
Last month there were 2,195 children aged 10 to 17-year-olds imprisoned in England and Wales.
Each place costs £100,000 a year and an extra £40,000 in indirect costs to society once the inmate is released.
The research coincides with the release of a documentary, The Fear Factory, which criticises the so-called "arms race" on law and order issues between political parties.
The report's author, Aleksi Knuutila, said: "Prison costs the public purse about six times more than sending a child to Eton.
"What really makes our obsessive use of prisons even more of a tragedy is that those resources could have been used to tackle crime much more effectively."
A Ministry of Justice spokeswoman said: "Latest figures show there are 20% fewer first time young offenders under 18 years of age than a year ago and the frequency of youth re-offending has fallen by nearly a quarter since 2000."
