It may helpful to think of this in terms of human rights; some rights apply to individuals so even though there may a group of them we'd refer to them as persons e.g. displaced persons. Some rights are held collectively and we would refer to them as a people e.g. Indigenous People of the Amazon.
eta: "Those people" and "you people" are both seen as racist dogwhistles. Your sister was probably laughing because you didn't intend or get the subtext of your phrasing.
Neither sex nor drugs were ever discussed...at least not by my parents.