Eh, I'd usually just be like 'That's really not cool.' and then I would appeal to their values, or something they believe in, like 'I know you're better than that, come on.' or 'Your mother would be so disappointed to hear you saying that sort of stuff in front of your granddaughter. Heck, I'm disappointed - I'm expecting you to set a good example.'

Generally speaking, when you want someone to improve their behavior, an appeal to their morals is usually the way to go. It's like saying 'You're not living up to your standards right now, are you?'