I'm sorry your grandfather is prejudiced against people of other races, not just because our society is rightfully more sensitive to racism than it used to be, but also because it's wrong in the eyes of God.
Why is this? The reason is because God created the whole human race, and He gave every person a soul or spirit so we could know Him and love Him -- just as He knows and loves us. We were created in the spiritual image of God, and although sin has scarred that image, every person on earth still bears something of that image. The Bible says God "made every nation of men, that they should inhabit the whole earth" (Acts 17:26).
Every human being is precious in the eyes of God -- so precious that He sent His only Son into the world to redeem us from sin's curse. Jesus Christ died on the cross to save people of every race, and in heaven we'll join together to praise God for His great love for us. There'll be no racism in heaven!
I'm thankful you don't have the same prejudices your grandfather has -- and I'm thankful also you don't want your children to have them, either. Pray for your grandfather, and if possible gently but clearly let him know that while you love him, you don't share his views on this -- and you hope he won't share them with your children. In any case, help your children learn to love others -- even those with whom you disagree.