I don't have children, but I work beside several 'kids' that are between age 17- 22, and it certainly seems to be a non-issue with them.
When I first moved to Glasgow in 1985, the city was rife with bigotry and sectarian language and violence. My boyfriend at the time had been in some trouble at the football, as had several of his pals. I wore a Rangers scarf into a pub once (totally innocently... I simply preferred the colour blue to the colour green, and I genuinely didn't know the 'meaning' behind it all)... someone set my scarf on fire... while it was still wrapped around my neck!
It wasn't all violence... sometimes it was something fairly subtle like where you lived, or what school you'd gone to. Sometimes it was just wee nuances in conversation. My sister in Texas had given birth to my niece, and I was telling people at work that i'd just become an auntie.
Them (various conversations merged for this example!):Oh...a baby girl, lovely! What's her name?
Me: they've called her Mary-Claire
.... look of shock crosses over their faces...
Them: oh, I didn't think you were that way inclined...
Me: ?? what way inclined ??
Them: Oh you know... a fenian/ a tim /a pape/ a left-footer/ insert whichever nickname for Roman Catholics you prefer/ we thought you were a proddy.
I think/I hope that with each generation that comes along, it gets more and more diluted.. it certainly seems to be going that way. As I said, i never hear even the slightest mention of it from the kids i work with. The only time i hear anything a bit 'off' is from people my own age (mid-50's and up).