Urban youth work organisation, XLP, has raised questions about the government's new Criminal Justice and Courts bill that means sentences of six months for those aged over 18 and 4 months for 16-17 year olds, irrespective of the circumstances.
The charity said it would cost more money to lock a young person up than to pay for mentoring to give them help to turn away from crime.
Figures show it costs £4,000 per year to mentor a young person compared to £65,000 every year on one place in a Young Offenders Institute.
Patrick Regan OBE, founder and CEO of XLP said: "The facts show that we are spending far more money on locking our young people up and dealing with the consequences than in attempting to work with young people before they get to this point.
"Early intervention is not only beneficial to our society as a whole, enabling young people to contribute positively to their communities, but it actually saves the government money.
"It is of course undeniable that actions have consequences. No one should get off scot-free for breaking the law.
"From nearly 20 years of experience working with some of the most hard to reach young people, we at XLP know only too well the tragic consequences of young people carrying knives.
"More than most, we have seen the pain and suffering it can bring. Yet, more than most, we also know the reasons that many of these young people are carrying knives in the first place and they vary massively."
The charity said many young people were compelled to carry a knife because of their involvement in gangs or fear of violence against them.
A Home Office study conducted in 2006 found that 85% of young people who carrying a knife claim to have done so for protection and just 4% have used it to threaten someone.
The plans were agreed in a House of Commons ballot by 404 votes to 53, a majority of 351.
The measure was passed during the coalition government.