In the 1960s, airline pilot Paul Sanderson regularly visited the stamp dealers that then lined The Strand in London, and even popped along to a few auctions to bid for items, as he amassed a sizeable collection of mint or near-perfect British stamps. He tucked them away imagining that one day they could be worth a bob or two, or at the very least form a prize collection to be passed on to his heirs.

Sadly, both hopes have been dashed. His grandchildren have shown no interest – "why would they, when they have their iPods and iPads," he says – so he decided to put his collection up for sale instead. He checked the values placed on his stamps by the Stanley Gibbons catalogue, still the trade's bible, and put them up on eBay. But his heart sank when he began to realise just how little stamps now fetch on the open market.

His used 1902 five shilling King Edward VII, currently valued by Stanley Gibbons at £175, achieved a price of just £6; a stamp commemorating King George VI's silver wedding in 1948, priced at £40 in the catalogue, sold for just £9; while a mint set of King Edward VI stamps from 1951 went for £22 compared with £100 in the catalogue.

"We are told that postage stamps are a good investment, and this may well be true for very old rare stamps," Sanderson says. "However, when it comes to less rare stamps we should treat Stanley Gibbons' catalogue values with a large pinch of salt, as in many cases they appear to be absurdly high. I have been selling some of my stamps and the prices raised have been a fraction of their catalogue values."

So what has happened to British stamp collecting? Is it a hobby in terminal decline with a generation of youngsters brought up on email and texting disinterested in what once seemed like every schoolboy's pastime?

One thing is certain – we're no longer licking stamps and sticking them on envelopes. The Royal Mail says the number of traditional addressed envelopes fell at a rate of 4%-7% a year between 2008 to 2011, but plummeted at an even faster pace after the steep increase in the price of first-class stamps to 60p last year.

John Baron, chair of the Association of British Philatelic Societies (ABPS), says: "I was 12 when I started collecting, and it was one of those things that everyone seemed to do. I joined my first stamp club in my school 50 years ago. But now we are not getting enough young people interested. Younger people have very different lifestyles to the way we were. My life was football and stamp collecting; now it's the internet and Twitter."

He advises collectors to regard the Gibbons catalogue as a guide to what is available rather than the real market price. "I had a text just this morning from a major collector. He says he takes the Stanley Gibbons price and divides it by between three and 10 so he knows what to expect. It's only if you go over £1,000 or so that the prices become more reliable."

A spokeswoman for Stanley Gibbons says: "The catalogue is a guide to values at the higher end of the market. What your stamps fetch is all about the quality of the items – whether they're mint, the quality of the colour, the perforations, the condition of the gum, to how clearly and centrally a postmark has been stamped.

"It is a common fallacy that the prices in our catalogues show what a stamp is 'worth' should you wish to sell it. They are, instead, the price at which Stanley Gibbons will sell a fine example of the stamp in question."

Many collectors blame the Royal Mail for over-doing commemoratives and first day covers. "There have been too many," Baron says. "The Post Office makes a lot of money from people who want to maintain a complete set of British stamps. A lot of collectors have standing orders to buy everything issued. That can cost £50-£60 an issue, and there can be a dozen issues a year."

Currently, the Royal Mail is selling Doctor Who stamps, with all 11 Doctors getting their own 60p first-class stamp, with the Daleks on second class. But Baron warns: "I'd buy a sheet of Doctor Who stamps for use as stamps, just that. My feeling is that you would not get 60p for them [when you come to sell], but probably more like 25p a stamp. You can sometimes buy an old man's collection and find sheets of unmounted, unused first-class stamps that are cheaper than buying new at the Post Office."

So what should you collect as an investment? One of the oddities of philately in the UK is that the major dealers – Stanley Gibbons apart – have a very British gentlemanly agreement to sell only to collectors, not investors. Paul Dauwalder, who runs Dauwalders of Salisbury, offers to buy and sell stamps, but says: "We are members of the Philatelic Traders Society, and we abide not to sell stamps for investment. It is just not the correct thing to do. People collect for the pleasure of collecting, and their collections then also have a residual value."

But he reckons reports of the death of stamp collecting are much exaggerated. "Yes, of course it has been in decline, and I've seen that in the 40 years I have been in the business. The average age of a collector is now 60-plus. You could argue that once they die off then that is going to be the end of stamp collecting. But what is interesting is that every year we see a new crop of 60-somethings starting to collect. They get to their senior years, want a sedentary type of leisure project, and stamp collecting is just perfect."

Stanley Gibbons says the subscriber base for its collectors magazine has held steady at about 16,000-18,000, while the Royal Philatelic Society London says its membership has actually been gradually increasing. "We have just reached our 2,000th member, and among serious collectors it is stronger than it has been for many years." It is trying to reignite collecting among children, supporting school clubs, but a spokesman says: "You do sometimes have to explain what stamps were."

There remain a surprisingly high number of active local stamp collecting clubs across Britain, with the ABPS listing hundreds in locations from Inverness to Plymouth.

Even though it's a cold and wet Tuesday evening, there are more than 25 collectors at Croydon Philatelic Society's fortnightly get together. Tonight is competition night, where members present frames of stamps and vie for medals and trophies – after paying £1 for the tea and biscuits.

Frank Simpson is a past president of the society and a member for 38 years. As he scans the hall he says: "There is no question it's diminishing. There are no youngsters, just look at the people here. Too many are dying off." It's fair to say no one in room appears to be under 60, and all but one is male. "But we have had three new members over the past year. Usually they are retired and the wife has pushed them out. It is a social club for many people and there's always a buzz."

Graham Harker, a recently retired headmaster, is one of the fresher faces in the room. Like most serious collectors he specialises in one area – in his case anything related to Isambard Kingdom Brunel. "I started collecting as a schoolboy, but rather spasmodically. Now I'm in retirement I have got into it a lot more. I come along to meetings and events such as Stampex."

Like most keen philatelists, he's as interested in social and political history as much as collecting flimsy pieces of paper. Stamps were first issued in 1840, but many collectors focus on pre-1840 envelope covers, researching their subject to an extraordinary degree and giving public talks. Simpson focuses on the Kingdom of Hannover, "and if you have three or four hours to spare I'll tell you about it," he says.

But not everyone has to be so dedicated. The only woman in the room, Pauline MacBroom, says: "I'm not going to tell you what I collect … OK, I will then. It's anything with cats on. I love cats. And I love this club, it's a lovely social. But don't let them all tell you they have been pushed out by their wives. They never let their wives know how much they spend on their hobby. I'd say they typically spend £1,000-£1,500 a year."

Dealers say there has been a surge in interest from buyers in India and China. David Bailey, a trader who sells in London's Portobello antiques market, says: "I trade in Indian stamps, and whenever I see good quality stuff it goes straight back to India."

Iain Kellingbeck

Not everyone in stamp collecting is in their dotage, and not everyone thinks it's uncool. Iain Killingbeck, 36, left, inherited his collection from his father when he passed away, and has surprised himself at how enthusiastic he has become. "My father said he would carry on collecting up until the Queen died, so in his honour I decided to take on the collection. I love the detail of the artwork and the incredibly skilled design that goes into something so small. I also enjoy the sense of tradition and the celebration of public events and anniversaries. Having worked on the London 2012 Games, my favourite set include all of the great Gold medallists last year.

"My collection would never be something I would sell, but something that I would liked passed down to the next generation."Maybe it will be the emerging markets that save British philaterly – when things are at their most unfashionable it is often the time to invest.