I suspect that's the same in a lot of places - it's similar to my experience. Although I didn't grow up in a particularly ethnically diverse area, my family were originally from a small country town, and there was definitely a trend of casual racism that could broadly be considered to not be malicious in nature, but was definitely still deeply rooted in the cultural assumptions of superiority. I can't say that there was even a lack of awareness of the terms used being anything but derogatory, though.
I certainly thought nothing of it when I was a kid, but as I grew up it didn't take long for me to realise just how wrong it was, and to eschew that type of accepted racism. And as we've improved as a society I've also seen positive changes in this regard in people I'd have not necessarily expected to see it in - those from generations before me, where racism was not just acceptable but institutionalised.
And then we have our good friend Spencer 'I don't even know how to spell racism, to be honest' Leniu.