When my kids use the wrong name for something, I don't correct them exactly but I will say "this kind of incorrect name
is called a *correct name*" so it hopefully doesn't feel like correcting but also does teach the right word. Sarah was in bed with me this morning and I was pronouncing pillow like it rhymed with "amarillo" (Spanish for yellow, not the town). Sarah said "Mama, this kind of pee-yoe is called a pillow." Bwahahahaha. She caught onto me already!